TFSA and Tax - Beneficiary Beware | Tax Free Savings Accounts | Discussion forum

Norman1, so if it's withdrawn same day as death there's no tax?

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.

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.

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.

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.

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).