TFSA Beneficiary vs. Successor Holder
Tax-free Savings Accounts (TFSA) are mainly known for their benefit of being tax-free. But there is another huge benefit of TFSAs, which is the ability to name either a beneficiary or successor holder on the account.
There are lots of benefits to having a beneficiary or successor holder designated on your TFSA. It helps expedite things after you pass giving your loved ones access to cash and investments faster. It helps avoid probate fees and it keeps things private.
When you don’t have a beneficiary or successor holder listed on your TFSA, your assets pass through your estate and estate information is public. By naming a beneficiary or successor holder on your account, the TFSA assets avoid your estate and go directly to the beneficiary – hassle-free!
What is the difference between a Beneficiary and Successor Holder?
The best way to describe the difference is that a beneficiary would receive the funds from the TFSA, and the deceased TFSA would be closed.
A successor holder would receive the TFSA with the funds still held within it. Therefore, the successor holder would get to keep all that tax-free room as their own. And if they make a withdrawal they would get the contribution room back the next year – as if the account was always theirs. This allows the successor holder to continue earning within the TFSA tax-free.
It is important to note that not everyone can be named a successor holder. This option is only available to spouses and common-law partners.
Whereas, family members, friends etc. can be named a beneficiary on a TFSA, but not as a successor holder.
bottom line
It is important to understand the difference between beneficiary designations on TFSAs. If you have any questions on your TFSA, please give us a call.