The article “What Happens To A TFSA After You Die?” was originally published on MoneySense on November 1, 2016.

There are three things you can do to make sure your TFSA goes to who you want

Q: I have topped up my TFSA to date and my wife has done the same. Returns have been good enough, no problem.

The TFSAs currently hold equity mutual funds as part of ‘near balanced’ allocations with a large mutual fund manager.

For estate planning and future risk planning (we are both 67), what happens to a TFSA upon death?

Is it liquidated and transferred to the survivor as cash?

 Is it transferred ‘as is’ to the survivor and added on to their plan?


A: Tax-Free Savings Accounts (TFSAs) are still relatively new accounts, having been introduced in 2009. I find there is still some uncertainty about how they work, ranging from what to buy to what happens when you die.

In general, there are three options with a TFSA on death, Edmund:

1. Name a successor holder who becomes the accountholder.
2. Name a beneficiary who receives a distribution from the account.
3. Name your estate to receive the distribution, with the proceeds distributed based on the terms of your will.

Some provinces allow individuals to appoint a “successor holder” who must be their spouse or common-law partner. The successor holder can be appointed with the institution that holds your TFSA directly or can be appointed in your will, Edmund. The successor holder literally takes over the account when the accountholder dies.

The TFSA continues to grow tax-free in the hands of a successor holder and generally, your surviving spouse will then consolidate the TFSA with their own TFSA for ease of administration. They can, however, maintain the account separately, if they so choose.

If you don’t have a spouse or common-law partner on your death, or you choose to appoint someone else as “beneficiary”, things work a bit differently. A non-spouse beneficiary is deemed to acquire the TFSA on your date of death, with any subsequent capital gains, losses or income being taxable on that beneficiary’s tax return. If the beneficiary is a minor child, you must appoint a trustee to manage the account until they attain the age of majority.

If you want your TFSA to go to your spouse and you live in a province that allows successor holders, Edmund, it’s important to name your spouse as the successor holder, not just the beneficiary. If they are just the beneficiary, they may still be able to contribute an amount equal to the value of the TFSA on your death to their TFSA if they do so by the end of the year following your death. However, any capital gains or income earned on the TFSA account after your death will be taxable to them.

If your TFSA was established in 2009 when the account was first introduced, you likely didn’t appoint a successor holder at that time as the concept did not initially exist. Check with your financial institution to be sure.

When you have a TFSA paid into your estate, keep in mind that the TFSA proceeds will be subject to probate. This may create an incremental cost for your estate, depending on the province where you live. Some provinces have flat fee probate and others charge a percentage of your estate, which will be higher if your TFSA makes up part of your estate.

Appointing a successor holder or a beneficiary may save probate, but it may not result in your estate wishes being carried out in the way you wish. So consider your TFSA designations as an important part of your estate plan, Edmund, especially as the years pass and TFSA balances become larger and an even more important estate consideration.

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto, Ontario. He does not sell any financial products whatsoever.