TFSA Designations: Why “Successor Holder” Matters for Your Spouse

TFSA Designations: Why “Successor Holder” Matters for Your Spouse

When setting up your Tax-Free Savings Account (TFSA), the distinction between naming your spouse as “successor holder” versus “beneficiary” isn’t just technical jargon—it can mean the difference between preserving or losing valuable tax-free savings room.
 

Successor Holder: Seamless Transition

A successor holder is a spouse or common-law partner who automatically steps into your shoes and becomes the new TFSA holder the moment you pass away. Think of it as a smooth handoff:

• The account continues unchanged
• Tax-free status is preserved on both the value at death and any future growth
• Your spouse doesn’t need to use their own TFSA contribution room
• The account simply becomes theirs, either kept separate or merged with their existing TFSA

Beneficiary: More Steps, More Risk

When you name your spouse only as a beneficiary, they receive the money, not the account itself. This triggers a different process:

• Your TFSA must be closed
• The fair market value at death is paid out tax-free to your spouse
• The TFSA “wrapper” and its contribution room are lost
• To keep the funds tax-sheltered, your spouse must re-contribute using their own available TFSA room (unless they structure it as an exempt contribution within strict post-death timing rules)
• Any growth after your death but before payout could become taxable

The Bottom Line for Ontario Clients

For married clients in Ontario, naming your spouse as successor holder is typically the cleaner, simpler choice. You’ll avoid extra paperwork, eliminate timing concerns, and protect your spouse from accidentally losing tax-free investment room.

Our recommended approach: Designate your spouse as the successor holder, then name other individuals (children, other family members) as contingent beneficiaries in the event your spouse predeceases you.

Have questions about your TFSA designations?

Contact us to review your accounts and ensure your beneficiary forms align with your estate plan.