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TFSA and Tax - Beneficiary Beware
November 29, 2017
9:12 pm
Need2Learn
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You may be surprised to know that your beneficiary of a TFSA may have to pay tax after your death. It happened to my spouse after he received a payment from a deceased family member's estate.

CRA said the tax was a result of a dividend pay posted AFTER the account was closed upon the death of the owner.

November 29, 2017
9:54 pm
Norman1
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Sounds correct.

Unless it has a successor holder, the TFSA ceases to be a TFSA on death of the holder. Any income from or growth in the assets of the former TFSA, after date of death, is no longer tax free.

Death of a TFSA holder - Designated beneficiaries has the details.

November 30, 2017
6:21 am
SavingIsGood
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Just share log in info and transfer funds to your joint account and then take money out. What is the problem????

November 30, 2017
7:24 pm
Norman1
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Doesn't matter how the money is withdrawn out of the TFSA.

Withdrawals become taxable once the total withdrawn exceeds the value on the date of death.

November 30, 2017
7:36 pm
Bill
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Norman1, so if it's withdrawn same day as death there's no tax?

November 30, 2017
8:38 pm
Norman1
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Yes, that's correct.

Only the part of the withdrawals that exceed the fair market value (FMV) on the date of death is taxable.

If FMV on date of death were $52,000 and all the TFSA withdrawals end up being $52,100, then just the $100 is taxable.

November 30, 2017
9:36 pm
Need2Learn
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I think the word "withdraw" may not be the correct term to use when applies to the TFSA of the deceased holder. The financial institution will decide what to do with the account based on the documents related to the holder. Neither the successor holder nor the beneficiary can "withdraw" the money directly at that point.

December 1, 2017
5:05 am
Bill
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That's my understanding too, Need2Learn. At the moment (not day) of death the TFSA is deemed no longer to exist. At the same moment the estate of the person is created and so all assets, including those formerly in the TFSA, can't be "transferred" until done so by the executors when the Will is settled (even if someone knows the dead person's log in info).

December 1, 2017
8:28 am
AltaRed
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Bill said
That's my understanding too, Need2Learn. At the moment (not day) of death the TFSA is deemed no longer to exist. At the same moment the estate of the person is created and so all assets, including those formerly in the TFSA, can't be "transferred" until done so by the executors when the Will is settled (even if someone knows the dead person's log in info).  

That is correct. To try and move funds from the account after the moment of death is illegal. The funds are frozen pending instructions from the executor of the estate. Any income or cap gains generated after the date of death becomes taxable to the beneficiary (successor holder excepted). That is the way it should be.

Added: The same is true with an RRSP that collapses on the date of death (i.e. surviving spouse is not a beneficiary and there is no spousal rollover). It is important for a testator making a will to recognize there will be tax to be paid on funds from a collapsed RRSP and unless the testator says in the will that it is the net proceeds (i.e. after tax) that go to a beneficiary (if the beneficiary is other than the estate itself), the estate will have to pay the tax. That can cause inequity if the beneficiaries of the RRSP funds and estate are not the same. Many people are known to handle this poorly (either from bad advice or those in a DIY Will mode).

There is almost always a T3 Trust (Testamentary Trust) tax return that needs to be filed to handle income that occurs in the estate after date of death and before distribution of funds to beneficiaries.

December 1, 2017
6:03 pm
Need2Learn
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Since we are already on this topic (death and tax) can someone please tell me what I should do with parents' situation who have no will. My parents don't own any physical assets except money in the bank and they put my name down as "joint" on their accounts. Should something happened to them, would that be good enough for me to look after things for them? Can I appoint myself as "executor" to look after their final paperwork (assuming no disagreement in the family)?.

Thank you for any input.

December 1, 2017
6:34 pm
AltaRed
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If you are a joint owner on the account, i.e. 3 names on account statements, and it is a true JTWROS, then each of the co-owners have an undivided interest in the account and each can do as they wish (for the most part) with the account.

IOW, if one or two co-owners becomes incompetent, the remaining owners continue to operate the account.

IOW2, if one or more co-owners die, the surviving owners then own the contents of the account.

Thus, if your parents truly only own one asset, i.e. a bank account, then the ownership of it will pass to you upon their death regardless of whether they have a Will or not. There will be no probate.

That said, there will still be many things to do and someone needs to be named to cancel things like CPP, OAS, Driver's Licence, Health Card, SIN number, Credit Card, file a final T1 Tax Return, terminate a rental lease, etc. Some will be easier to do than others. You cannot self-appoint yourself as executor. I suggest you google information for your province on 'intestate succession' and go from there.

December 1, 2017
7:51 pm
Norman1
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AltaRed said

Thus, if your parents truly only own one asset, i.e. a bank account, then the ownership of it will pass to you upon their death regardless of whether they have a Will or not. There will be no probate.

Legal title on the account will pass on death. But, not necessarily the beneficial ownership.

In earlier post, the Supreme Court case Pecore v. Pecore was found. The case established that when a parent has a joint account with an adult child and the parent dies, the adult child is presumed to own the account in trust for the parent's estate. There is a presumption of resulting trust.

The estate, creditors of the estate, and beneficiaries of the estate can recover the money in the account from the adult child unless that presumption of resulting trust is rebutted.

December 1, 2017
10:57 pm
Need2Learn
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My real concern is when both of them die how do I prove to the government that I'm one of their children (I wasn't born in Canada) so I can look after their papers?

I have heard many people died without a will then who appointed the person to look after their estate?

December 2, 2017
6:43 am
Bill
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Need2Learn, AltaRed's post 11's last sentence indicates what you need to do.

If there's no Will my understanding is the court appoints an administrator/executor, usually the surviving spouse, next would be a child, etc. Also, someone can apply to the court to be the executor/administrator, again the court will decide.

Presumably even though you weren't born in Canada you will have the usual id (driver's licence, health card, immigration/citizenship docs, etc) that establishes who you are and/or you will provide an affidavit (perhaps witnessed or supported by siblings) indicating who you are. I wasn't born in Canada either but that's not a requirement to be able to prove I'm my parents' son.

December 2, 2017
7:46 am
Norman1
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It is the probate court that appoints the executor in all cases. Where there is a will, it is clearer who the deceased wished the executor to be. In most cases, the court will appoint the person named in the will. But, not always.

The named person could decline the position. Person may not have been asked by the deceased beforehand and doesn't want to do the work needed for the compensation offered.

The named person could have developed dementia in the years since the will was executed and be no longer capable of being an executor.

December 2, 2017
7:58 am
Norman1
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When there is no will, I think it would be important to prove that one is a child.

In many provinces, the estate would be divided among the surviving spouse and children. If I can't prove I'm a child, then I won't be entitled to a share. Unfortunately, there would be a financial incentive for the other siblings to disavow a sibling. sf-frown

December 2, 2017
8:02 am
AltaRed
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Agree with both Bill and Norman. It is a matter of the court to decide.

A lawyer would need to assist N2L in making application to the court to be executor/administrator. They have seen this sort of thing before. N2L would have some evidence of his/her relationship with his/her parents, plus the lawyer would most likely get affidavits from others with knowledge of N2L and his/her parents attesting to relationship. If there are other siblings, they would have to agree amongst themselves who will be executor/administrator and sign supporting affidavits, or have a bun fight in court and let the court decide.

It is either a simple court decision (e.g. one adult child, one main asset), or a complicated matter with rival relatives fighting it out in court on who will be executor/administrator, and finally the bun fight on distribution of the estate. N2L has not disclosed who, if any, other relatives there might be potentially hovering in the wings.

Added: People who do not have valid Wills are really being cruel to their offspring, relatives, etc. Very much a case of being penny wise, and pound foolish, but it happens on a too regular basis.

December 2, 2017
10:28 am
Bill
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It's not usually an issue until the 2nd parent dies. Assuming both parents are still married and living together and there are no other extenuating circumstances the courts will disburse the intestate spouse's estate to the surviving spouse, adult children not usually considered at that time.

AltaRed, assuming all offspring are adults I don't agree that people without wills are being cruel. If I die intestate there's no legal requirement for anyone else to get involved in my estate - everybody can just go home after the funeral and let the authorities, gov't do whatever they want. Easy-peasy, no cruelty.

December 2, 2017
12:03 pm
Norman1
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Bill said
It's not usually an issue until the 2nd parent dies. Assuming both parents are still married and living together and there are no other extenuating circumstances the courts will disburse the intestate spouse's estate to the surviving spouse, adult children not usually considered at that time.

In Manitoba, under The Intestate Succession Act, the surviving spouse will inherit the entire intestate estate only when all the descendants are also the survivor's descendants:

If all issue of both intestate and surviving spouse or common-law partner

2(2) If an intestate dies leaving a surviving spouse or common-law partner and issue, and all of the issue are also issue of the surviving spouse or common-law partner, the entire intestate estate goes to the surviving spouse or common-law partner.

Otherwise, a portion goes to the descendants:

If issue of intestate but not surviving spouse or common-law partner

2(3) If an intestate dies leaving a surviving spouse or common-law partner and issue, and one or more of the issue are not also issue of the surviving spouse or common-law partner, the share of the surviving spouse or common-law partner is

(a) $50,000., or one-half of the intestate estate, whichever is greater; and

(b) one-half of any remainder of the intestate estate after allocation of the share provided by clause (a).

December 2, 2017
12:35 pm
Bill
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Norman1, interesting, though of course it makes perfect sense to protect the interests of children with another partner. Guess that's an example of what I was thinking of by "extenuating circumstances" but I guess that with the break-up rate over the last few decades what I might think of as "extenuating" is actually very common and maybe even predominant.

Also, here's a link which indicates also that (in Ontario) the first $200,000 goes to the current spouse, then the rest is divided:
https://www.attorneygeneral.jus.gov.on.ca/english/family/pgt/heirclaim.php

Guess that's why you need lawyers! And thus it's probably cheaper just to make a Will!

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