When Margot inherited her late husband's TFSA as a named beneficiary rather than a successor holder, the account was collapsed and the funds transferred to her directly. She then re-contributed the full amount into her own TFSA. The problem: she had already maxed her own contribution room and the excess triggered a 1% monthly penalty.
What separates a successor holder from a beneficiary?
A successor holder — available only to a spouse or common-law partner — absorbs the deceased account directly. The account balance transfers without consuming the survivor's own contribution room. A beneficiary simply receives the money as cash, and any re-contribution counts against their existing room.
Can both a successor holder and a beneficiary be named?
Yes. A common structure names the spouse as successor holder and adult children as contingent beneficiaries if the spouse predeceases. This covers both the primary and secondary transfer without forcing either through probate.
What about the growth earned after the date of death?
If the account is not collapsed immediately, any growth earned between the date of death and the date of transfer is taxable to the beneficiary. A successor holder avoids this entirely because the account simply continues in their name without interruption.
How do you check which designation is currently on file?
Contact the financial institution directly. Many online account forms default to beneficiary language, and the successor holder designation requires a separate form that not all platforms surface during account setup.
Reviewing TFSA designations after any major life event — marriage, divorce, death of a parent — takes under 30 minutes and prevents a problem that is straightforward to avoid in advance.