Beneficiary vs Successor Holder on a TFSA: Ontario Differences

If you hold a TFSA or an RRSP, you may have been asked who should receive it when you die. The words "successor holder" and "beneficiary" sound similar, but they lead to different results for the person left behind.

This article explains the difference on a TFSA, how each choice relates to probate and the Estate Administration Tax in Ontario, and what to confirm with your financial institution, an accountant or a lawyer.

What a successor holder is, and what a beneficiary is

A successor holder is the survivor you name as the new holder of the TFSA, either in the contract or in your will. When you die, the successor immediately becomes the new holder and owner, and the account continues.

A designated beneficiary is different. A beneficiary receives the value of the account rather than taking over the account itself.

Put simply, a successor holder steps into your shoes, while a beneficiary is paid out. The right choice depends on who you want to carry on the account and what that person needs.

How the two choices compare

A successor holder is the survivor named as the new holder of the TFSA, in the contract or in the will, and the account continues, while a designated beneficiary receives the account's value. How it works for an RRSP, and who can qualify, is a separate question to confirm with your institution or an accountant.

Probate and the Estate Administration Tax

Ontario charges an Estate Administration Tax when probate is issued. No tax is payable on estates of $50,000 or less, and above that the tax is $15 for every $1,000 (or part thereof) of the estate's value. The estate pays this tax, not the beneficiaries or the estate representative.

Assets that pass outside the estate are left out of that value. This includes jointly owned assets that pass automatically to the surviving owners, and RPPs, RRSPs, RRIFs and TFSAs that have a beneficiary designation. If no probate certificate is applied for and issued, no Estate Administration Tax is due.

This is one reason a clear designation matters. If a TFSA or RRSP has no designation, it may fall into the estate, and the estate trustee then deals with it as part of winding up your affairs and distributing under the will. Whether a successor holder named in a will is treated the same way as a designated beneficiary for this purpose is worth confirming with a lawyer.

Income tax: what the person receiving the money faces

The CRA lists most gifts and inheritances among amounts that are not reported or taxed. That is a general starting point for the person receiving an inheritance.

Tax on death is usually dealt with on the deceased person's side. A deceased person is considered to have sold all their property just before death, and any capital gain or loss is reported on the final return, not by the beneficiary. Property transferred to a surviving spouse or common-law partner who is resident in Canada at the time of death can avoid a gain or loss on the final return, and it generally must vest in that person within 36 months of death.

How a particular TFSA or RRSP is taxed at death depends on the type of account, who receives it and when. Ask an accountant before you decide on a designation.

What to do next

• Check what your TFSA and RRSP currently say about a successor holder or beneficiary.
• Decide whether you want someone to carry on the account or simply receive its value.
• Make sure the designation matches the rest of your estate plan so there are no surprises.
• Ask your financial institution how it records and confirms designations.
• Speak with a lawyer or accountant about probate, the Estate Administration Tax and income tax in your situation.

If you are the person who has been named, how this applies depends on your situation, so it is worth confirming with a lawyer before you decide what paperwork to keep or who to tell.

Frequently asked questions