What Is the Difference Between a TFSA Successor Holder and a Beneficiary in Canada?

This answer covers Canadian federal tax law, which applies in every province.

A successor holder takes over the TFSA itself, while a designated beneficiary receives the money from it. A successor holder is the surviving spouse or common-law partner named in the TFSA contract or in the will, and on the holder's death they immediately become the new holder. Anyone else you name, such as a child, other family members or an organization, is a designated beneficiary who receives the account's value rather than taking over the account.

When a successor holder takes over, the deceased is not considered to receive an amount from the TFSA, so the account continues as a TFSA with its tax-free status intact. The successor holder's own contribution room is not affected if the deceased had no excess amount, and they do not gain the deceased's unused room. A successor holder must have a valid social insurance number or individual tax number.

For a deposit or annuity TFSA without a successor holder, the account stops being a TFSA on the holder's death, and all earnings after death are taxable to the beneficiary. If no one is named, the TFSA assets go to the estate and the will governs distribution. Quebec does not recognize the successor holder designation for TFSAs.