What Happens to Your TFSA and RRSP When You Die?

Let's talk about something that many of us rarely think about. What actually happens to your RRSP and your TFSA contributions when you die? It's not a fun topic I know but it's critical to understand what happens to your monies, right? Because if you don't plan properly your hard-earned money could go straight into the government's purse instead of to your family. So let me break it down for you clearly. Let's start with the RRSP. If you pass away and you don't have a spouse or you are the last surviving spouse, your entire RRSP balance is treated as income in the year of your death. So let's say you have 350,000 in your RRSP. The Canada Revenue Agency will add that full amount to your final income tax return. At current top marginal rates, which can go up to 53.53% depending on your province, you could lose over half of your RRSP to taxes. Yes, really. And whatever is left after taxes gets passed to your beneficiaries. They can use it however they like but they will get significantly less money than you probably expected. Now there's one exception. If you have a spouse or financially dependent child, you can roll your RRSP to them tax deferred but if not, the CRA gets paid first. Now let's talk about your TFSA and this is where things get a little bit different. If you have a spouse, name them as the successor holder, not just the beneficiary. And I'll tell you why. Because that allows them to take over your TFSA completely tax-free. The account remains intact and all your investments stay sheltered. But what if you're not married or you name someone else like your child or a sibling? In that case, your TFSA is tax-free until the day you die. But once your beneficiary gets that money, any growth or interest after your death is taxable in their hands. So for example, let's say you had a 100,000 in your TFSA when you passed. That 100,000 won't be taxed but if they reinvest it and it grows, that new growth will be taxed. Now here's the thing that no one tells you. You could spend your whole life saving, investing and doing the right thing only for half of it to disappear in taxes after you're gone. That's the real risk of not understanding how your accounts work at death and it's why exit planning isn't just for the rich. It's for anyone who wants their money to So what can you do? If you're married, make sure that your spouse is listed as a successor holder on your TFSA. Consider naming a qualified beneficiary on your RRSP like a spouse or a dependent child to defer taxes. And if you don't have that option, start thinking about RRSP draw down strategies in retirement to reduce the final tax that hits you. You can also talk to a certified advisor about setting up a TFSA beneficiary plan or even using life insurance to offset the tax from your RRSP. I am certified and I can help you set that up. You can book a consultation in my calendar. The link is in my bio. The goal you need to have in mind is this. Make sure that your legacy is protected and your family isn't left with a nasty surprise when you pass. If you found this helpful, send it to someone who also wants to protect their legacy. You worked too hard to let poor planning wipe out your savings. So?