Death of a TFSA Holder: TFSA Successor Holder & Beneficiary

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This post answers the question: What happens to a TFSA when the owner dies? Then goes on to explain what a TFSA successor holder and TFSA beneficiary means, and the rules around who to choose as the beneficiary of a TFSA.

One of the costliest TFSA mistakes you can make is not designating a beneficiary on your TFSA account. Luckily, it can be avoided by taking a few, easy steps.

TFSA on Death: What happens to a TFSA When the Owner Dies?

What happens to the TFSA when the accountholder dies depends on whether a beneficiary was set or not. There are 3 possibilities with different tax impacts:

  1. A TFSA successor holder (or successor annuitant) was named;
  2. A TFSA beneficiary was designated;
  3. Neither a TFSA successor annuitant nor beneficiary were named.

The fair market value of the TFSA on the date the owner dies will be added to the deceased’s estate completely tax-free if no beneficiary or successor holder was named in the contract.

If the deceased made a designation and lived in a province or territory that allows it, the value will go to the person(s) named as beneficiary or successor holder.

The choice between the two will determine how the TFSA and any gains after the date of death will be treated and taxed.

We will cover the difference between the two in more details below.

TFSA Successor Holder

Why it is important to have a TFSA successor holder and who can be one.

A successor holder, or successor annuitant, is the person that takes over the ownership of a TFSA after the deceased owner passes. They essentially acquire all the rights to the account.

With a TFSA, the person you choose as the successor holder inherits not just the funds in the account but also the contribution room immediately after you die.

That is, any income earned by the deceased till the time of their death and thereafter will be passed to the new accountholder completely tax free. More importantly, the successor holder’s TFSA contribution will not be affected by the inheritance.

It’ll be completely up to the success holder if they want to keep the account or make a qualifying transfer to their existing account to avoid dealing with multiple TFSA accounts.

A T4A tax slip or Form RC240 will not even be required.

Who Can Be a TFSA Successor Holder?

Only a surviving spouse or common-law partner can be a TFSA successor holder. Other survivors such as children, former spouses or registered charities can be designated as TFSA beneficiaries, but not as successor holders.

If you have a spouse and you want them to inherit your TFSA when you’re gone, designating them as the successor holder is very important.

It saves them the extra paperwork and having to deal with taxes that could have been avoided.

This designation only works in provinces and territories that allow beneficiary designation on TFSAs.

Fortunately, many provinces and territories allow it, except for Quebec. Quebec only allows beneficiary designation on insurance products.

TFSA Beneficiaries

A TFSA beneficiary is someone that has been named to receive some or all the value of a TFSA upon the death of the holder. It can be anyone such as children, spouse or common-law partner, charities organizations and so on.

If one or more of the beneficiaries are under 18, you’ll also need to appoint a trustee that will manage the account till they reach the age of majority – 18 or 19 depending on the province.

When a person dies, the fair market value of their account on the date they passed will be transferred to the beneficiaries completely tax-free. However, any additional gains will be taxable in the hands of the beneficiaries.

Here’s an illustration:

Sam’s TFSA had a balance of $35,000 when he passed on June 1, 2020. He has designated his daughter, Chloe, as a beneficiary in his TFSA contract. However, the transfer was completed on September 30, 2020 when the balance in the account has grown to $39,000.

Chloe will receive the $35,000 tax-free but the additional $4,000 investment gain will be added to her income for the year and taxed.

She may choose to contribute part or all the funds to her own TFSA if she has unused contribution room. She can not inherit the contribution room since she’s not a successor holder.

Spouses and common-law partners can get around this rule by designating the contribution as exempt.

Exempt Contribution By a Survivor

CRA allows some flexibility when a survivor, that is the spouse or common-law partner, is named as a beneficiary for a TFSA.

Subject to certain conditions, the survivor may choose to contribute the payment to their own account and designate the funds as an exempt contribution. The payment is called survivor payment.

This way, their unused TFSA contribution room remains unchanged.

Here are the conditions:

  • The contribution must be made within the rollover period. The rollover period starts on the day the TFSA holder dies and end by Dec 31st of the following year.

Using the same example from before: Assume Sam left the TFSA to his spouse, Samantha, instead. The rollover period ends on Dec 31, 2021.

If she received the payments on September 30, 2020, she can contribute the entire amount to her own TFSA even if she had maximized her contribution room for the year.

But she must complete the Form RC240 within 30 days and send to one of the TFSA Processing Unit offices.

The designation of exempt contribution is not allowed in some cases such as when:

  • There are multiple beneficiaries
  • The deceased had an excess TFSA amount when they passed; and
  • The payment or contribution were made after the rollover period.

In these instances, the survivor needs to contact CRA for guidance.

How to Designate a TFSA Successor Holder

how to add a beneficiary or successor holder to your TFSA

You can designate a TFSA successor holder in 2 ways:

  1. Make the designation on your TFSA contract, i.e. through your TFSA provider; or
  2. In a Legal will

The first option is easy and straightforward. Usually, you would have provided a beneficiary details when you opened your TFSA account.

If you’re not sure whether you made this designation, you should reach out to your TFSA provider to confirm and fill out the documentations if needed.

Some of them may also have a guide on how to add a beneficiary or successor holder to your TFSA like this one from Questrade.

And If you decide to go with the Legal Will option, there are low-cost Will preparation companies that help you through the process without leaving the comfort of your home.

LegalWills and Epilogue Wills are 2 options to check out.

What if the deceased had an excess TFSA?

The excess TFSA amount will be deemed to have been contributed to the successor holder’s TFSA in the following month.

This excess amount will be eliminated if the successor has unused contribution room. Otherwise, the excess amount remains, and the 1% monthly penalty will continue until the amount is withdrawn.

Here’s an example: Bryan died on February 15th, 2020 with a TFSA overcontribution of $3,000. He has named his spouse Jane as a successor holder. Jane will be deemed to have made a $3,000 contribution to her own TFSA in March 2020.

Assuming she has unused TFSA contribution room of $5,000, the deemed contribution will reduce her available room to just $2,000 and the excess amount will be eliminated.

On the other hand, what happens if her available TFSA room is lower than the excess? Say she had only $1,000 unused contribution?

The $1,000 will be applied to the excess TFSA amount, leaving a balance of $2,000 that will continue to be taxed every month until she withdraws it.

TFSA Successor Holder vs Beneficiary

Having a beneficiary or successor holder named on a TFSA contract prevents its value from going into the deceased’s estate and subject to probate fees.

But if the survivor is a spouse or common-law partner, the best designation is a successor holder.

We’ve covered the differences between the two in details but here’s a summary of the reasons why a successor holder is better:

  • Less documentation: There’ll be no need for a T4A tax slip or RC240.
  • Income earned in the TFSA after the deceased died will also be tax-free.
  • The transfer of the TFSA will not affect the survivor’s contribution room. A beneficiary that is a spouse may also elect to make an exempt contribution, but they have a short window (rollover period) and must fill additional documentation.
  • Even if the deceased had an excess amount at death, the successor holder will still take ownership of the account including the excess. But a beneficiary will have to contact CRA first.

Some FAQ

Do TFSAs bypass probate?

Yes, if the deceased named a beneficiary or successor holder and lived in a province that allows designation of beneficiaries on non-insurance contracts. These include Ontario, Alberta, British Columbia and others except for Quebec.

Do beneficiaries pay tax on a TFSA?

Irrespective of the beneficiary designation, the fair market value of the TFSA on the date the deceased died will be transferred tax-free. However, the gains after this date will be taxed in the hands of the beneficiaries unless the beneficiary is a successor holder.

What is the difference between a TFSA Successor holder and a TFSA Beneficiary?

Both of them will receive the fair market value of the TFSA on the date the deceased died completely free. However, any income after that date will be taxable in the hands of beneficiaries but not for successor holders. Also, successor holders can transfer the TFSA to their own TFSA account without reducing their contribution room.


Hopefully, you now know what happens to a TFSA when the owner or accountholder dies. You can save your loved ones a lot of stress by carefully thinking about who your beneficiaries are.

A good estate plan should not stop at just creating a will, getting life insurance and so on. You also need to make transferring your assets to your survivors as easy as possible.

Review the beneficiaries on all your accounts periodically, especially after major life changes. And work with Estate Planning professionals to be sure you’ve not missed out anything.

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Simon is a CPA by day and a Personal Finance Blogger by night. With over a decade experience in financial services, he's passionate about personal finance, investing and helping people take control of their financial life.

1 thought on “Death of a TFSA Holder: TFSA Successor Holder & Beneficiary”

  1. Hi, I have been doing a lot of reading and cannot find the answer to this. It seems no one has thought of this and they should because it seems many relationships are common-law and the children of the TFSA holder may lose out on the funds that may have been intended for them… If someone names their common-law spouse as a Successor Holder of their TFSA, and also their adult son as the Beneficiary, what happens when the initial holder of the TFSA passes? I understand the TFSA reverts to the successor holder. Is the successor holder then able to name whomever they want as the beneficiary? So the son to the original holder of the TFSA does not receive any funds, correct? If the holder of the TFSA wants funds to go to their own kids, in my opinion they should then name all the parties as beneficiaries and not appoint a successor holder, correct?


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