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TFSA Estate Planning Considerations

The recent article written by Amin Mawani, Associate Profession of Taxation at the Schulich School of Business of York University, entitled TFSA Designations May Cause Estate Planning Problems, highlights some important estate planning considerations for tax-free savings account (TFSA) holders.

In April, the Federal Government raised the cumulative TFSA contribution limit to $41,000.00. This increased contribution room makes it more likely that a TFSA could grow into a considerable estate asset.

In his article, Dr. Mawani discusses the difference between a named “successor-holder” and a named beneficiary. A TFSA holder may designate their spouse or common-law partner as a successor-holder, and anyone else as a beneficiary (including a spouse or common-law partner). A successor-holder trumps a beneficiary if both are alive at the time of the original account holder’s death. A beneficiary trumps the deceased’s estate if the successor-holder is also deceased or if no successor-holder was designated. If an accountholder does not designate a successor-holder or a beneficiary, the TFSA becomes part of the deceased’s estate and, if in Ontario, will be subject to Ontario’s estate administration tax (formerly referred to as probate).

Dr. Mawani explains that if the proper designations are made, the TFSA account will not de-register upon death of the account holder. The assets will remain tax sheltered, and the named successor-holder can either make tax-free withdrawals, while maintaining his or her own TFSA or consolidate the deceased’s account into their own.

TFSA holders should be careful to ensure that a successor-holder and a beneficiary (or beneficiaries) have been designated, and that those designations reflect their wishes. This will help to ensure as smooth of a transfer as possible of their TFSA to their loved ones upon their passing.

If you have estate planning questions, do not hesitate to contact one of the estate planning professionals at Daniel & Partners LLP.

Article written by Matteson DeLuca, summer student.