FP Answers: What happens to TFSA contributions and limits once a spouse dies?

financialpost.com:

By Julie Cazzin with Andrew Dobson

Q: My wife recently passed and, as per her direction, her registered retirement income fund (RRIF) and tax-free savings account (TFSA) were rolled over/added, in kind, to my own RRIF and TFSA accounts. A friend recently advised me that I am allowed to continue a contribution going forward of $7,000 per year (times two) into my TFSA because it now holds both her and my contributions. This seems totally unreasonable to me, but I thought I’d run the question past you.

FP Answers: Sorry to hear about the recent loss of your wife, Al. “Rolling over” registered assets from a deceased spouse to the survivor is a common strategy to defer taxable income and allow assets to remain in tax-preferred accounts. Registered retirement savings plan (RRSP) and RRIF accounts can remain tax deferred and TFSA accounts can remain tax free.  

The owner of a TFSA account can name a beneficiary or a successor holder for the account. If a spouse is named as a beneficiary, the TFSA — up to the value on their date of death — can be paid into the survivor’s TFSA on a tax-free basis. This must be done by Dec. 31 of the year following the death. Any other non-spouse beneficiary can have the TFSA account paid to them, but not directly into their TFSA.

Only a spouse can be named as a TFSA successor holder, and there is a subtle difference from being named a beneficiary. A successor holder can become the account holder for their deceased spouse’s TFSA. They can also elect to have the TFSA paid into their own TFSA. So, either way, a surviving spouse can add their deceased spouse’s TFSA to their own. But the successor holder option ensures any income or growth after death remains tax free as well.

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