TFSA Beneficiary vs. Successor Annuitant (Holder): Which is best for you?

When setting up a Tax-Free Savings Account (TFSA), one important decision is what happens to the account when you pass away. You have two main options: naming a beneficiary or naming a successor annuitant (Holder). While they sound similar, the implications are very different—and choosing the right one can save time, taxes, and stress for your loved ones.

What Is a TFSA Beneficiary?

A beneficiary is the person (or people) who will receive the funds in your TFSA after your death. Here’s what happens:

• The TFSA is closed, and the assets are paid out to the beneficiary.

• The payment is tax-free, but the account itself does not continue as a TFSA.

• Any income earned after the date of death is taxable to the beneficiary.

This option is often used when leaving money to children, other family members, or charities, because it provides a straightforward payout.

What Is a Successor Annuitant?

A successor annuitant is available only for spouses or common-law partners. Here’s why it’s powerful:

• The surviving spouse becomes the new holder of the TFSA.

• The account continues as a TFSA, with all its tax-free benefits intact.

• There is no impact on the survivor’s own TFSA contribution room.

This means the funds stay sheltered from tax, and the surviving spouse can keep the account growing without any extra paperwork or tax consequences.

Which Option Should You Choose?

• For spouses or common-law partners:
  The successor annuitant designation is almost always the better choice. It allows the TFSA to continue seamlessly, preserving its tax-free status and avoiding unnecessary withdrawals.

• For children, other relatives, or charities:
  Use the beneficiary designation. It ensures the funds are paid out tax-free, even though the account itself will close.

Why This Matters

Choosing the right designation can make a big difference in preserving wealth and avoiding complications. If you’re married or in a common-law relationship, naming your spouse as a successor annuitant is the most efficient way to keep your TFSA intact.

Need help reviewing your TFSA designations?
We can walk you through your options and ensure your plan aligns with your goals. Schedule a call today and take one more step toward financial peace of mind.