“I inherited my husband’s TFSA. Does that affect my contribution room?”

You were able to roll his money into your TFSA either because of actions you took, which I will explain further down, or because your husband named you as a successor holder. The main designation options for TFSAs are beneficiary, successor holder, or estate.

Beneficiaries receive the value of the TFSA at the time of the owner’s death, tax-free. Investment growth between the time of death and the beneficiary’s receipt is taxable. Naming a beneficiary avoids probate by bypassing the estate, which expedites the time for the beneficiary to receive the proceeds of the TFSA. What a beneficiary designation does not do is allow for an exempt rollover into a surviving spouse’s TFSA.

If the estate is designated, the money will pass through the estate and be subject to probate. Plus, investment growth after the time of death will be taxable. There is no exempt automatic rollover into a surviving spouse’s TFSA, but it can be done with a little work and the proper form.

How to enable a TFSA rollover after the fact

For both the beneficiary and estate designations, you can complete form RC240 permitting the exempt rollover—but you have to act fast. You must roll the funds over into the surviving spouse’s TFSA by December 31 of the year following the spouse’s death, and you must submit form RC240 within 30 days after the TFSA rollover contribution is made. That is a bit of work and there is room in there to make a mistake.

To make things easy—and almost foolproof—spouses should name each other as successor holders of their TFSAs. A successor designation allows for an automatic exempt rollover contribution to your TFSA. The growth on the TFSA is not taxable, but it is not eligible for the exempt rollover.    

If you are wondering if any of this really matters, yes, it does. We have come a long way from when TFSAs were first introduced and you could only shelter $5,000 from taxes on income and realized gains in that first year. The current lifetime contribution limit is $102,000. That is $102,000—plus any investment growth—that you can shelter from taxes and that you should pass on to your spouse at death. 

How a deathbed contribution can save you taxes

Rolina, you and your husband did well maximizing your TFSAs so that his contribution room could live on with you. Unfortunately, not everyone is able to do what you two did.

Those who are not able to max out their TFSA may want to consider a “deathbed contribution” if death is imminent. A deathbed contribution means topping up your TFSA so your spouse will have a larger TFSA with which to shelter money. There may not be an immediate need for the additional TFSA room, but who knows what the future may bring? There may be a home sale, an inheritance, a transfer of money from a registered retirement income fund (RRIF) to a TFSA… again, who knows?