Named beneficiary vs. Successor holder
One of the most commonly overlooked considerations regarding a TFSA Designation of Beneficiary is whether or not to designate your spouse or common-law partner as a ‘named beneficiary’ or ‘successor holder’. Understanding the difference between them can seem complicated, but it is quite simple.
Named Beneficiary (spouse, or any other person)
Upon your death, your named beneficiary would receive the funds within the TFSA. However, the account itself would subsequently be closed. Unless your beneficiary had their own TFSA contribution room available, and chose to invest these funds in their personal TFSA, they may otherwise be taxed on any investment gains moving forward. Any investment growth between the date of your death and payout is also subject to tax.
Your TFSA account would be re-named in your surviving spouse’s name and would remain intact. It’s important to note that only your spouse or common-law partner can be named as a successor holder.
Naming a successor holder
Upon your death, the transfer of your TFSA to your common-law partner or spouse is seamless – they become the account holder with no tax consequences at all. Even if your common-law partner or spouse has a TFSA of their own, their unused contribution limits are unaffected by the succession.
Once the change of name on your TFSA account (to your spouse’s name) occurs, they would now own two separate TFSAs. They can choose to keep these accounts separate, or they can be combined into their own existing TFSA. This is called a ‘qualifying transfer’, and does not affect available TFSA room for your spouse.
Either way, the option to combine or keep separate would be up to your surviving spouse and can be done at any time. Learn more about TFSAs: scu.mb.ca/TFSA
Start the conversation
It’s important to regularly review your beneficiaries to ensure your wishes are recorded and still accurate, particularly if you’ve undergone any major life changes. Reach out to our wealth management team to get started.
Everyone’s saving situation is unique – and there are many strategies that work for different circumstances. The advice in these articles are meant to provide general information only, and does not constitute financial, accounting, tax, legal, or other professional advice. We encourage you to seek personalized advice from qualified professionals regarding your unique savings needs and goals.
* Mutual funds are offered through Credential Asset Management Inc. The information contained in this newsletter is provided as a general source of information and should not be considered personal tax advice, investment advice or solicitation to buy or sell any mutual funds. Credential Financial Strategies Inc. is a member company under Aviso Wealth Inc., offering financial planning, life insurance and investments to members of credit unions and their communities.