An important difference from naming a spouse as successor rather than beneficiary is that income and growth from a TFSA after death is taxable to the beneficiary. Not so with a successor holder.
Since your wife Scott’s bill had no designation at all, it will default to her estate being paid. But fear not – there is a solution.
As the executor of her estate and sole beneficiary, you can have her TFSA’s account transferred to yours without affecting your TFSA chamber. You may not be a successor or beneficiary of the account, but you are a beneficiary of its estate. The caveat is that the transfer must be made no later than December 31, 2023 (the end of the year after her death). This should be enough time to settle her estate and divide her assets.
What Happens to a TFSA After Death?
Now, on to the estate distribution and your question about estate taxes. Estate or estate taxes are payable on the value of an estate’s assets at the time of death. It is important to distinguish estate assets from other assets of the deceased.
A beneficiary of a TFSA, Registered Retirement Savings Plan (RRSP), or life insurance policy will receive their benefits without the assets going through the estate. Usually only a death certificate is required. Assets held jointly or certain assets such as shares of private companies may also avoid probate.
Probate Fees and TFSAs
Probate or estate administration is owed on the value of the assets, including TFSAs, that go through an estate and are distributed based on the terms of a will. So if an asset is not held jointly or has no beneficiary or successor, it is generally subject to probate.
Probate requires paperwork to be filed with the county or territory and an estate or estate tax to be paid based on the value of the relevant assets. Alberta, Quebec and the areas have flat fees ranging from $0 to $525. The other provinces have rates from 0.4% to 1.695%, usually on estate values above a certain threshold.
A 1% fee on a large estate would cost $10,000 per $1 million in assets, so could be a significant cost in dollars, albeit a relatively small one in percentage terms. Some people go to great lengths to avoid probate and could potentially incur greater costs or other risks.
This post Can You Avoid Inheritance Taxes on TFSAs?
was original published at “https://www.moneysense.ca/columns/ask-a-planner/can-you-avoid-probate-taxes-on-tfsas/”