The critical TFSA estate planning distinction — survivor gets the room, beneficiary does not
When a TFSA holder dies, what happens to the account depends critically on whether the spouse is named as a successor holder or merely a beneficiary. These two designations look similar on paperwork but produce dramatically different outcomes.
| Feature | Successor Holder | Beneficiary |
|---|---|---|
| Who can be named? | Spouse or common-law partner only | Anyone (spouse, children, estate) |
| TFSA room transferred? | Yes — account transferred intact | No — only money transfers |
| Post-death growth taxable? | No — fully tax-free | Yes — taxable after date of death |
| Uses survivor's contribution room? | No | Yes (if re-contributed to TFSA) |
| Account status after transfer | Continues as TFSA for survivor | Account is closed |
| Available in all provinces? | Yes (including Quebec) | Yes |
If no beneficiary or successor holder is named, the TFSA becomes part of the deceased's estate and goes through probate. This means:
This is the worst outcome from a tax and estate efficiency perspective. All Canadians with a TFSA should designate either a successor holder (if married or common-law) or a beneficiary.
Even when named as a beneficiary (not successor holder), a surviving spouse may still be able to contribute the inherited TFSA funds to their own TFSA without using their contribution room — provided they make an "exempt contribution" within 30 days of receiving the funds (or by December 31 of the year following the year of death). This requires completing Form RC240 (Designation of an Exempt Contribution — Tax-Free Savings Account).
However, this exempt contribution does NOT preserve the tax-free status of post-death growth — that growth is still taxable. The exempt contribution rule simply allows the principal value at death to be re-sheltered without burning TFSA room.
Quebec does not recognize beneficiary designations on registered accounts in the same way as other provinces. In Quebec, TFSA beneficiary designations are not legally binding under provincial law — they must be made through a will or marriage contract. Quebec residents should consult a notary to ensure their TFSA estate planning is properly structured.
The FHSA has different estate rules: if the holder dies before making a qualifying withdrawal, the balance can be transferred to an RRSP or RRIF of the surviving spouse tax-free, or collapsed and included in the deceased's terminal return. The RDSP has highly complex holdback and repayment rules on death — see our RDSP guide.
KOHO makes it easy for couples to save together. Earn up to 4.5% on joint savings. Code 45ET55JSYA.