There have been a lot of discussions around the features and benefits of the new First Home Savings Account (FHSA) and how it can help first time home buyers. Our team released a blog last year detailing many of the features: What is the First Home Savings Account? However, it is also important to understand the finer details that are not discussed as frequently. One example is the treatment of the FHSA upon death.

For the FHSA, you can designate a spouse as a successor account holder. Upon your death, the surviving spouse becomes the new account holder of the FHSA, provided they meet the eligibility requirements. All the benefits and features pass onto the surviving spouse, and the FHSA maintains its tax-exempt status. This would not impact the surviving spouse’s own contribution limits if they held their own FHSA. If the spouse is not eligible to open an FHSA, they can transfer the amount on a tax-deferred basis to their RRSP/RRIF. Alternatively, the surviving spouse could also withdraw the funds on a taxable basis.

If the beneficiary of the FHSA is not your spouse, the funds will be withdrawn and paid to your beneficiary. The amounts paid will be included in your beneficiary’s income and taxed at their marginal tax bracket. The withdrawal will also be subjected to withholding tax. If no beneficiary is named on the FHSA, the funds flow directly into their estate and are considered income.

It is important to remember that the FHSA ceases to be a FHSA at the end of the year following the year of death.

The treatment of a FHSA upon death is only one of the less talked about details that everyone should be aware of. There are other areas that should be understood before opening a FHSA: 1) Home Buyers’ Plan vs. First Home Savings Account, 2) the consequences of overcontribution, 3) the process of closing a FHSA and 4) the treatment of a FHSA if an individual becomes a non-resident. To understand if the FHSA is suitable for you and the type of investments one could consider, please speak with one of our qualified advisors so they can recommend an appropriate solution.