What happens to your TFSA when you die ?

Generally, the value of the TFSA at the date of death can be paid out, tax-free, to your beneficiary or to your estate, if you have not named a beneficiary. No amount is included in the income of the TFSA holder at death. Investment growth earned after the date of death will be taxable to the beneficiary or estate.

If you have named your spouse or common-law partner as the successor holder of your TFSA, the TFSA becomes his or her TFSA and maintains its tax-exempt status. If your spouse or common-law partner is not named as successor holder, but receives the assets or the value of the TFSA as a beneficiary of your TFSA he or she may be able to make an exempt contribution to his or her own TFSA. The exempt contribution must be made prior to the end of the year following the year of death.

TFSAs can provide an advantage in the case of death because:
The value of the policy goes directly to the beneficiary, bypassing the deceased's estate and any applicable probate fees or estate administration taxes.
You can protect a specified amount of your initial investment with the various death benefit guarantee options, meaning your beneficiary receives a minimum amount regardless of the policy market value.

TFSA or RRSP ?

Some things to consider when choosing between a TFSA and an RRSP are:
Maximum contribution limits are relatively lower than for the TFSA ($10 000 per year), so if you have more than $10 000 to invest you could start with a TFSA contribution and then contribute the remainder to an RRSP.
Pension adjustments may reduce RRSP contribution limits, making the TFSA preferable.
RRSP contributions are not available to those over age 71.
Consider contributing more to an RRSP when you're subject to a higher tax rate.
If you have maximized your RRSP contribution consider making a TFSA contribution.
TFSA contribution limit is not based on earned income, so each member of a couple can contribute $10 000 per year, regardless of whether he or she has any earned income. This can be an income-splitting opportunity. A higher-income spouse/partner can give the lower-income spouse/partner the money to make a TFSA contribution.

TFSA

The account can be used to meet a variety of financial planning needs.

Young families

The sooner you open an account the more time you have to grow investments .

Retirees

Tax-free savings, income earned, and withdrawals from your account don't trigger clawbacks on old age security benefits or the guarantee income supplement.

Higher income earners

Provides an alternative tax-effective savings vehicle if registered retirement savings plan (RRSP) contributions have been maximized, and is also an opportunity for a spouse (or common-law partner) to income-split by making a gift of money to the other, thereby allowing a total TFSA contribution of $20 000.00 per family per year.

Anyone saving for a big ticket item

Earn tax-free investment income while saving for a big purchase such as a vacation,, a car, a house, or a child's education.

Eligibility

Every resident of Canada who is age 18 or older and has a social insurance number is eligible to contribute to a TFSA. There is no maturity date on a TFSA (unlike an RRSP) and it doesn't need to be wound-up or converted to a different investment vehicle. You can contribute to a TFSA without filing a tax return. However, you will need to track your own contribution and determine your limit. For people who file a tax, the Canada Revenue Agency will provide your contribution room limit on your notice of assessment.

Withdraw any time, for any purpose

The money you accumulate in a TFSA can be withdrawn at any time without tax consequences, and without affecting any federal income-tested benefits or tax credits you may be eligible for such as:
Old Age Security
Guaranteed Income Supplement
Age Credit
Goods and Services Tax (GST) credit
Canada Child Tax Benefit

There are no time limits for withdrawing and no restrictions on how you spend your money. Withdrawals increase your contribution room in the year following the withdrawal, allowing you to save again for another purpose.

Compare your investment options

Whether you invest in a TFSA, RRSP or a non-registered accounts depends on a number of factors. It's not that one is better than the other; rather they have different features and benefits. Your personal savings needs will help you and your advisor determine which type of investment is right for you. The chart below compares some of the features of each account type.

	TFSA	RRSP	Non-Registered
Minimum age to open a plan	Yes	No	No
Annual contribution limit	Yes	Yes	No
Contributions are tax-deductible	No	Yes	No
Withdrawals are taxable	No	Yes	No
Contribution room lost on withdrawal	No	Yes	N/A
Unused contribution room is carried forward	Yes	Yes	N/A
Contribution limit is based on earned income	No	Yes	N/A
Investment growth	Tax-Free	Tax	Taxable