What to Do When You Inherit Money in Canada 2025

Updated March 2025 • 10 min read

Inheriting money often arrives during an emotionally difficult time. The financial decisions you make in the months after receiving an inheritance can have lasting consequences. This guide helps you navigate what to do — and what to avoid.

Is Inherited Money Taxable in Canada?

Canada does not have an inheritance tax or an estate tax. As a beneficiary, you generally do not pay tax on money you inherit. However, there are important nuances:

• The deceased's estate pays taxes: The deceased is deemed to have disposed of all assets at fair market value on the date of death. The estate pays the resulting capital gains and income taxes before assets are distributed to beneficiaries.
• RRSP/RRIF inheritance: If you inherit a non-registered RRSP or RRIF (meaning not a spousal RRSP transferred to a surviving spouse), the full value is included in the deceased's income in the year of death and taxed accordingly. What you receive as beneficiary is after-tax money (the estate has already paid the tax).
• Spousal rollover: Assets transferred to a surviving spouse (including RRSPs, RRIFs, and capital property) generally roll over on a tax-deferred basis — no immediate tax is triggered.
• Investment income you earn on inherited money: Once you invest the inheritance, any income (interest, dividends, capital gains) is taxable to you going forward.

Step 1: Do Nothing for 30–90 Days

The most important first step is to park the money in a safe, accessible account (a high-interest savings account or a TFSA) and do nothing significant for 30–90 days. Grief impairs decision-making. Well-meaning financial advisors, friends, and family may pressure you to invest quickly — resist this. Giving yourself time to make clear-headed decisions costs you almost nothing.

Step 2: Pay Off High-Interest Debt

Before investing, consider paying off high-interest debt — particularly credit card debt (often 19.99%+ interest) and personal loans. Eliminating debt at 20% interest is equivalent to earning a guaranteed 20% return. This is almost always the best first move with a windfall.

Step 3: Build or Top Up Your Emergency Fund

If you don't have 3–6 months of expenses set aside, use part of the inheritance to establish this buffer. Keep it in a high-interest savings account (HISA) — separate from your everyday spending account.

Step 4: Maximize Registered Accounts

After debt repayment and emergency fund, prioritize registered accounts:

• TFSA: The most flexible option. Growth is tax-free and withdrawals are tax-free at any time. Maximum cumulative contribution room in 2025 is $95,000 if you were 18 and a Canadian resident in 2009. Check your room through CRA My Account before contributing.
• RRSP: If you are in a relatively high tax bracket and have contribution room, an RRSP contribution generates a tax refund that can itself be invested. You pay tax on withdrawals in retirement, ideally at a lower rate.
• FHSA: If you are a first-time home buyer, the First Home Savings Account allows up to $8,000/year (lifetime $40,000) with tax-deductible contributions and tax-free withdrawals for a home purchase.

Step 5: Invest the Remainder

Once registered accounts are maximized, invest the remaining inheritance in a non-registered (taxable) account. A low-cost, diversified approach using index ETFs is suitable for most people. Consider your investment timeline, risk tolerance, and whether this inheritance changes your overall financial picture significantly.

Probate and the Executor Process

If you are the executor of the estate as well as a beneficiary, you have additional responsibilities:

• Apply for a grant of probate (where required) through the provincial court
• Probate fees (estate administration tax) vary by province — Ontario charges approximately 1.5% of estate value over $50,000; BC charges up to 1.4%; some provinces charge minimal fees
• File the deceased's final tax return (T1 terminal return) and estate return (T3) if the estate earns income
• Pay all debts and taxes before distributing assets to beneficiaries

Inheriting an RRSP or RRIF as a Non-Spouse

When you inherit an RRSP or RRIF as a non-spouse beneficiary (not a minor child or financially dependent child/grandchild), the full registered account value is included in the deceased's income for their final tax year. The estate handles this tax. You receive the net (after-tax) proceeds as a beneficiary — these are not re-contributed to an RRSP.

Exception: A financially dependent child or grandchild may be able to roll an inherited RRSP into their own RRSP, deferring the tax.

Inheriting a Property

Inheriting real estate triggers a deemed disposition at fair market value on the date of death. Capital gains on appreciated property are reported on the deceased's final return. As the inheriting beneficiary, your adjusted cost base (ACB) for the property is the fair market value at the date of inheritance. If you later sell the property, you pay capital gains tax on the appreciation from that value.

What Not to Do With an Inheritance

• Don't make major financial decisions within the first month
• Don't loan large sums to family members — it rarely ends well
• Don't invest in high-risk or speculative assets based on excitement
• Don't ignore the tax implications of non-registered investment income going forward
• Don't trust unsolicited investment advice from strangers or vague acquaintances