Does my spouse automatically inherit my TFSA?

Not automatically. You must designate your spouse as either a "successor holder" (best option) or beneficiary. Without a designation, TFSA goes to your estate and may face delays and fees.

Is a TFSA taxable when you die?

No tax is owing on the TFSA value at death. However, any growth AFTER death (if not transferred properly) can become taxable. Designating a spouse as successor holder avoids this issue entirely.

What is the difference between a successor holder and beneficiary for TFSA?

A successor holder (spouse only) takes over the TFSA as if it were their own — no contribution room used, no taxes. A beneficiary receives the cash value, which doesn't use their TFSA room but any growth after death may be taxable.

What Happens to Your TFSA When You Die in Canada?

TFSA on Death: Two Options

Designation	Who Can Be Named	Tax Result	TFSA Room Impact
Successor Holder	Spouse/Common-law only	Tax-free	No room used
Beneficiary	Anyone	Value at death tax-free; growth after may be taxable	No room used

Successor Holder (Best for Spouses)

How It Works

Step	What Happens
1	Account holder dies
2	Spouse is named successor holder
3	TFSA transfers directly to spouse
4	Spouse becomes new account holder
5	No tax consequences whatsoever
6	Doesn’t use spouse’s contribution room

Benefits of Successor Holder

Benefit	Explanation
Immediate transfer	No probate delays
No tax on growth	Even after death
Preserves contribution room	Spouse keeps their own room
Continues tax-free growth	Same as before
Simple	Automatic transfer

Example: Successor Holder

Factor	Amount
TFSA value at death	$150,000
Spouse named as successor holder	—
Growth between death and transfer	$5,000
Tax to spouse	$0
Contribution room used	0
Spouse’s new TFSA balance	$155,000

Beneficiary Designation

How Beneficiary Works

Step	What Happens
1	Account holder dies
2	Beneficiary (anyone) receives funds
3	FMV at death is tax-free
4	Any growth AFTER death may be taxable
5	Must transfer or withdraw by Dec 31 of year following death

Beneficiary vs Successor Holder

Factor	Successor Holder	Beneficiary
Who can be named	Spouse only	Anyone
Growth after death	Tax-free	May be taxable
Transfer to their TFSA	Direct, no room used	Uses their contribution room
Probate	Bypassed	Bypassed
Complexity	Simple	More complex

Example: Beneficiary Designation

Factor	Amount
TFSA value at death (June)	$100,000
Value at transfer (December)	$108,000
Tax-free portion	$100,000
Potentially taxable	$8,000
If beneficiary contributes to their TFSA	Uses $100,000 of their room

The Exempt Contribution Rule (Spouse Beneficiary)

If spouse is beneficiary…	They can make an “exempt contribution”
Amount	Up to the FMV at death
Timeline	By Dec 31 of year following death
Effect	Doesn’t use their contribution room
Growth after death	Still potentially taxable

No Designation (Estate)

What Happens Without a Designation

Step	What Happens
1	TFSA goes to estate
2	Subject to probate fees
3	Delays in distribution
4	Growth after death is taxable
5	Distributed per will

Why to Avoid This

Problem	Impact
Probate fees	1-1.5% in Ontario
Delays	Months to settle estate
Taxable growth	After death
Complication	Estate must handle

TFSA Designation Instructions

How to Designate

Method	Process
On TFSA application	Check box for successor holder/beneficiary
Separate form	Contact financial institution
Through will	Possible but adds complexity
Update regularly	After marriage, relationship changes

Province Matters

Province	Successor Holder Allowed?
Ontario	Yes
BC	Yes
Alberta	Yes
Quebec	No — must use will
Other provinces	Mostly yes

Quebec: Cannot name successor holder directly on TFSA. Must be done through will or marriage contract.

Estate Planning Strategies

For Spouses

Best Practice	Action
Name spouse as successor holder	On every TFSA
Update after marriage	Ensure designation exists
Annual review	Confirm designations current

For Non-Spouse Beneficiaries

Strategy	Details
Name beneficiary	Avoids probate
Consider multiple beneficiaries	% splits allowed
Inform beneficiaries	They know to act quickly
Transfer timeline	Before Dec 31 of following year

If You Have Both

Situation	Strategy
Spouse and children	Spouse = successor holder; children = contingent
Second marriage	Consider which spouse designated
Blended family	May need specific estate planning

TFSA vs RRSP on Death

Factor	TFSA	RRSP/RRIF
Tax-free to spouse	Yes (successor holder)	Yes (rollover)
Tax-free to others	FMV at death	No (fully taxable)
Growth after death	Taxable (beneficiary)	Taxable
Contribution room	Not used (successor)	N/A

Action Checklist

Task	Status
Check current TFSA designations	☐
Name spouse as successor holder	☐
Name contingent beneficiaries	☐
Review after marriage/divorce	☐
Update will to match	☐
Inform executor	☐