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TFSA Beneficiary vs. Successor Holder: Designating a TFSA Beneficiary

The TFSA is a useful investment tool to avoid paying taxes on investment returns. However, depending on how the estate of the account holder is set up, there may be tax implications on income earned on TFSA funds after the account holder dies.

What happens when a TFSA holder dies? Who gets the TFSA assets? What are the differences between a standard TFSA beneficiary and a Successor Holder? What taxes are payable?

Depending on the marital status/will/decision of the account holder, there are a few options available:

Designated TFSA Beneficiary

Anyone can be designated as a beneficiary to a TFSA after the account holder dies. The beneficiary may be a survivor, former spouse, common-law partner, child, friend, etc.

You can designate multiple beneficiaries to your TFSA.

Generally, if a beneficiary has been designated by a TFSA account holder, the TFSA is collapsed after death, and the funds are disbursed as cash to the beneficiary.

Any income earned on the account between the date of death and the date of transfer to the beneficiary is taxable.

Example 1: Daisy, a TFSA holder, died with a TFSA valued at $50,000 at the time of her death. Daisy’s only child, Daniel, was named beneficiary by way of her will. At the time the estate was settled and Daisy’s TFSA was closed, the account was valued at $55,000 (an increase of $5,000).

As the beneficiary of Daisy’s estate, Daniel received $55,000 from Daisy’s TFSA and is expected to report the additional $5,000 as taxable income for the year.

tfsa beneficiary vs tfsa successor holder

For a designated beneficiary who also qualifies as a survivor, there are further options.

As per the CRA:

Survivor: An individual who is, immediately before the TFSA holder’s death, a spouse or common-law partner of the holder.

A beneficiary who is also a survivor is allowed to contribute the value of the TFSA at the time of death to their own TFSA without requiring or using their contribution room.

This is also known as an “exempt contribution” and must occur by December 31st of the year following the death of the account holder. However, income earned on the TFSA after death is still taxable.

Example 2: Continuing from Example 1 above, let’s now assume that Daniel is actually Daisy’s surviving husband and was designated as a beneficiary in her will. Because he is considered a “survivor,” the amount paid to him is considered a survivor payment, and he can roll over (contribute) the $50,000 to his TFSA without requiring a contribution room, i.e. an exempt contribution.

If he has a contribution room of up to $5,000, he can also contribute the excess $5,000 to his TFSA. However, the excess amount of $5,000 will still be considered taxable income in the year he initially received it.

A beneficiary who is not a spouse (survivor) can also contribute TFSA proceeds to their own TFSA only if they have contribution room.

TFSA Successor Holder

Only your spouse or common-law partner can be designated as the successor holder of your TFSA account. If you die, as a successor holder, they acquire all the rights related to your account, the account stays open, and there are no tax consequences.

The successor holder essentially replaces you as the plan holder. Additionally, the successor holder doesn’t need to have a TFSA contribution room to receive the benefit.

You can designate a spouse or common-law partner as a successor holder either in your TFSA contract or in your will.

Final Thoughts

Except for Quebec, all other provinces permit TFSA beneficiary designations as either designated beneficiaries or successor holders.

In Quebec, TFSAs are included in the estate and subject to the will.

Naming your spouse or common-law partner as a successor holder is advantageous since there are no probate fees and nil tax implications.

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Gravatar for Enoch Omololu, MSc (Econ)
Enoch Omololu, MSc (Econ)

Enoch Omololu is a personal finance expert and a veterinarian. He has a master’s degree in Finance and Investment Management from the University of Aberdeen Business School (Scotland) and has completed several courses and certificates in finance, including the Canadian Securities Course. He also has an MSc. in Agricultural Economics from the University of Manitoba and a Doctor of Veterinary Medicine degree from the University of Ibadan. Enoch is passionate about helping others win with their finances and has been writing about money matters for over a decade. He has been featured or quoted in Forbes, The Globe and Mail, Winnipeg Free Press, Wealthsimple, CBC News, Financial Post, Toronto Star, CTV News, Canadian Securities Exchange, Credit Canada, National Post, and many other personal finance publications. You can learn more about him on the About Page.

His top investment tools include Wealthsimple and Questrade. He earns cash back on purchases using KOHO, monitors his credit score for free using Borrowell, and earns interest on savings through EQ Bank.

8 thoughts on “TFSA Beneficiary vs. Successor Holder: Designating a TFSA Beneficiary”

  1. Gravatar for Beth B

    I have a TD TFSA Account, and I have recently divorced.
    How do I name my daughter as my TFSA Beneficiary?
    Is there a CRA form? (I can’t seem to locate one on the CRA website.)
    Thank you,

    • Gravatar for Enoch Omololu

      @Beth: Ask your investment company or bank as they typically provide the form to their clients. Sometimes, you can also find the information on your account and after filling out the form, you will need to upload or email it back to them. The CRA does not manage this directly.

  2. Gravatar for Brian William Day

    To be added as a TFSA beneficiary do I need to provide a SIN

    • Gravatar for Enoch Omololu

      @Brian: I believe you do.

  3. Gravatar for Val

    Can you name more then one person on the TFSA as beneficiary?

    • Gravatar for Enoch Omololu

      @Val: There’s no limit to the number of beneficiaries you can have for your TFSA.

  4. Gravatar for Steve B.

    Great explanation on beneficiary vs. successor holder – thanks Enoch!

  5. Gravatar for Kristian

    Me: US citizen, Canadian permanent resident, spouse: Canadian citizen

    We live in Canada. As an American citizen I know that having a TFSA is complicated and may not result in favourable taxation. I also learned recently that being named a successor holder on a TFSA as a spouse is better overall than being named a beneficiary. Is being named a successor holder on my spouse’s TFSA advisable due to my American citizenship? Or should I only be listed as a beneficiary?

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