Jordan Wealth Management Group - ScotiaMcLeod Truro

ScotiaMcLeod is now able to offer the TFSA Successor Holder form (CA124), and Designation of Beneficiary for Registered Plans form (CA42) for the provinces which have enacted legislation to allow for such designations and provinces that have jurisdiction over the designating of beneficiaries (including successor holders).

General Rules

When the holder of a deposit or an annuity contract under a TFSA dies, the holder is considered to have received, immediately before death, an amount equal to the fair market value (FMV) of all the property held in the TFSA at the time of death.

After the holder's death, the annuity contract is considered to be a separate contract and is no longer considered as a TFSA. All earnings that accrue after the holder's death will be taxable to the beneficiaries.

Generally, amounts paid from the TFSA that represent the income earned in the TFSA after the date the holder died have to be reported by the holder's beneficiaries. These payments have to be included in the income of the beneficiaries for the year they are received.

A beneficiary will not have to pay tax on any payments made out of the TFSA that do not exceed the FMV of all the property held in the TFSA at the time of death.

Spouse or common-law partner is the sole beneficiary of the TFSA

The deceased holder is not considered to have received an amount from the TFSA at the time of death if, in the TFSA contract, the deceased holder named his or her spouse or common-law partner as the sole beneficiary of the TFSA. In this situation, the TFSA continues and the spouse or common-law partner becomes the successor holder under the plan. Successor Holders are the spouse or common-law partner of the Account Holder. They assume all the rights and obligations of the Holder's TFSA Plan upon their death.

If at the time of death there was an excess TFSA amount, the successor holder is deemed to have made, at the beginning of the month following the date of death, a contribution to their TFSA equal to the amount of the excess TFSA amount. If that contribution creates an excess contribution to the successor holder's TFSA, they will be subject to a 1% tax per month on the highest amount for each month they are in an overcontribution position.

If, in the TFSA contract, the holder named his or her spouse or common-law partner and someone else as beneficiaries of the TFSA, we consider that there is no successor holder. The spouse or common-law partner would be considered a survivor.

TFSA Successor Holder form (CA124)

Other Beneficiaries

When no spouse or common-law partner is named in the TFSA contract, the deceased holder's estate becomes entitled to receive the TFSA property. If the deceased's will states that the spouse or common-law partner is entitled to the amounts paid under the TFSA, or that the spouse or common-law partner is the sole beneficiary of the estate, the spouse or common-law partner becomes the survivor.

Under proposed changes, the TFSA that becomes a trusteed arrangement is deemed to continue to be a TFSA until the end of the exempt period, which is the end of the calendar year following the year in which the holder dies, or when the trust ceases to exist, if earlier.

All income earned during the exempt period and paid to the beneficiaries, including a survivor, will be included in their income, while earnings that accrued before death would remain exempt.

The survivor may contribute payments made within the exempt period to them from a deceased holder's TFSA into their own TFSA without affecting their unused TFSA contribution room limit. Such survivor payments become an exempt contribution.

In order for the survivor to designate an exempt contribution, the survivor must designate their survivor payments as an exempt contribution on Form RC240, Designating an Exempt Contribution to a Survivor Tax-Free Savings Account (TFSA) within 30 days after the day on which the contribution is made.

An exempt contribution cannot exceed the payment received during the exempt period and the FMV of the deceased holder's TFSA at the time of death.

Designation of Beneficiary for Registered Plans form (CA42)

Donation Upon Death

If a qualified donee was named as a beneficiary of the deceased holder's TFSA, the transfer of funds to the qualified donee must generally occur within the 36-month period following the holder's death.

Designation of Beneficiary for Registered Plans form (CA42)

Here are some examples that may prove helpful in explaining the similarities and differences:

Example #1: Client wishes their spouse to receive the proceeds of their plan

The client should complete the Successor Holder form (CA124) and designate their spouse or common-law partner only. This means that the successor holder (the surviving spouse/common-law partner named on this form) will take over the existing TFSA Plan when the Account Holder dies; the Plan name and SIN are changed to the successor holder’s name and SIN. They will not be able to make new contributions to this Plan, however, they will be able to make or alter any beneficiary designations and they will be able to cash out the Plan at any time or transfer it to a TFSA in their own name.

Example #2: Client wishes their children (or others such as friends, charities) to receive the proceeds of their plan

The client should complete the Designated Beneficiary form (CA42) and designate their children, or others, including the proportion of the Plan, which they should receive. This means that these beneficiaries will receive the proceeds (“in-kind” or in cash) of the Plan when the Account Holder dies. The Plan will then cease to exist, and no further transfers or designations can be made.

You may complete the form appropriate to how you wish the funds to be disbursed from your TFSA account and mail the form to:

ScotiaMcLeod

7 Inglis Place  2nd Floor

Truro NS  B2N 4B5

Or you can drop it off at any Scotiabank branch and address it to:

ScotiaMcLeod - Truro NS

Transit # 10033

If you have any questions or need assistance in completing a form, please contact us.