First off, the receipt of an inheritance is generally not taxable. Most or all of the tax is paid by the deceased person’s estate, and the after-tax proceeds are distributed to the beneficiaries.

As a result, the inherited property is initially the property of the beneficiary child. This same concept applies when someone is working and earning. That cash is theirs for tax purposes.

A joint account could be impacted by these attribution rules, as well. If you deposit an inheritance into a joint account, the income must be reported by the spouse who received the inheritance, not 50/50.

Giving money from an inheritance or income to your spouse does not conflict with the rules of spousal responsibility. There is no legal way to override the rules contained in section 74.1(1) and 74.2 of the Income Tax Act. And the inheritance is not one of the exceptions mentioned in section 74.5.

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So, if your spouse has TFSA room, it may make sense from a tax perspective to contribute to their TFSA. If they have an existing TFSA, you can also get a name. You could take a withdrawal from their TFSA—ideally late in the year—and use that withdrawal to fund a non-registered account in their name. Then, you could use the inheritance to replenish their TFSA.

Any TFSA withdrawals from the previous year are added to your TFSA balance on January 1 of the following year. So, a December TFSA withdrawal can be added back the next month.

If you’re putting an inheritance in a joint account because that’s how you and your spouse want the money invested, that’s fine. You can legally have a joint account, but the one that is “beneficially” belongs to the inheriting spouse.

The borrowing partner must pay the interest to the lending partner, and the interest income must be reported by the lender and taxed. The borrower can deduct the interest on their tax return. If the loaned funds generate more than a 3% return, there may be an advantage, effectively shifting income from one spouse to the other—legitimately.