– It basically boils down to whether you want the TFSA to go to specific
individuals when you die or simply to be folded in as part of your estate
to be distributed according to the provisions of your will.
The Canada Revenue Agency recognizes two types of beneficiaries for TFSAs:
A survivor (that is, someone who is a spouse or common-law partner of the
holder immediately before death) who has been designated as a successor
holder; and a designated beneficiary (this could be a survivor who has not
been named as a successor holder, former spouses or common-law partners,
children, and qualified donees, such as registered charities).
Note that the type of beneficiary can be affected by other designations
made for the TFSA, provisions made in a valid will, and the succession
legislation applicable in the province where the TFSA holder lives.
In provinces that recognize a TFSA beneficiary designation, a survivor
(i.e., spouse or common-law partner) can be designated as a “successor
holder” of the TFSA. The successor holder designation means that all the
rights of the TFSA are conferred on the spouse or common-law partner,
including the right to revoke any beneficiary designation. The spouse or
common-law partner thus becomes the new TFSA account holder.
A survivor can also be named as successor holder in the TFSA holder’s will
provided the will specifies that the successor holder acquires all of the
holder’s rights to the TFSA, including the unconditional right to revoke
any beneficiary designation. If the TFSA is a trust arrangement, the trust
will continue as the legal owner of the property held in the TFSA.
The key point here is that under a successor holder designation, the TFSA
continues to exist as a separate TFSA account in the name of the successor
holder, and any income earned after the original holder’s death will
continue to be sheltered from tax. And in general, the successor holder’s
own unused TFSA contribution room will not be affected. The successor
holder can make withdrawals from, and contributions to, the successor TFSA,
subject to their own contribution room.
A successor holder may directly transfer funds between accounts, without
affecting their available TFSA contribution room.
A TFSA holder may also designate a beneficiaries other than a survivor
holder. Beneficiaries could include, for example, a spouse or common-law
partner who has not been named as a successor holder, former spouses or
common-law partners, and children.
The key benefit of designating a beneficiary is that the beneficiary will
not have to pay tax on TFSA withdrawals, as long as the total payments
don’t exceed the fair market value (FMV) of all the property held in the
TFSA at the time of the holder’s death.
Payments received from such a TFSA can be contributed to a beneficiary’s
own TFSA provided they have unused TFSA contribution room available.
However, a designated beneficiary who is also a survivor (i.e., spouse or
common-law partner) may designate some or all of a survivor payment from a TFSA as an exempt contribution to their own TFSA, without affecting their
own unused TFSA contribution room,
subject to certain conditions.
If no successor holder or beneficiary is designated in the TFSA or the TFSA
holder’s will, the assets in the TFSA are liquidated at fair market value
and become part of the holder’s estate to be distributed in accordance with
the terms of the deceased holder’s will.
This is by no means a complete explanation of all the twists and turns that
can occur with TFSAs (or other registered plans, like RRSPs) when
considering estate planning implications. Your best course of action is to
consult with a qualified financial planner or your lawyer to ensure you get
the estate planning outcome you want. – Robyn
Robyn Thompson, CFP, CIM, FCSI, is the founder of
Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management
for high net worth individuals and families. Contact her directly by
phone at 416-828-7159, or by email at
for a confidential planning consultation.
Notes and Disclaimer
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The foregoing is for general information purposes only and is the opinion
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