Check beneficiary when setting up a TFSA
By Gordon Powers, Sympatico / MSN Finance
While many Canadians are keen on the new TFSA, few are clear on what happens when the planholder dies, a recent survey by Mackenzie Financial suggests.
Of the one in five Canadians who currently hold a TFSA, just about half weren't sure whether the account would be taxable to their beneficiaries on death, and more than two thirds didn't know if the beneficiary would require TFSA contribution room to continue to enjoy tax-free growth.
Correct answer: Only a spouse or common-law partner can be a successor holder, acquiring all rights of the original TFSA holder on death. The successor holder will not require TFSA contribution room to receive this benefit. There is, however, room for other types of beneficiaries, explains Wilmot George, an estate planning specialist with Mackenzie.
Generally, it's a good idea to name a beneficiary where permitted, particularly in provinces that have probate taxes. This way the money can bypass the estate and be paid directly to a beneficiary without probate tax which, in Ontario, is 1.5%.
However, not every province allows you to name a specific beneficiary on your TFSA. So far only Alberta, B.C., Nova Scotia, P.E.I., and the North West Territories have enacted beneficiary designation legislation – although Ontario is expected to follow along soon.
Since these plans are so new, all this doesn’t make a big difference right now. If someone were to die in 2009, it means just a $75 charge on the current TFSA limit of $5,000 per year, assuming there's no growth on the account. As these accounts grow though, the amounts will increase so thinking about a beneficiary from the outset is a good idea.
Posted by: JW | May 6, 2021 5:57:58 PM
I recently transfered out of my iScotia brokerage account because they demanded that I provide the SIN for my beneficiary.
I explained to them that:
a) there appeared to be no legislative requirement enabling them to do so (I called the CRA and confirmed);
b) not everyone wants the beneficiary to know they're potentially going to inherit, in case the account holder changes their mind;
c) I can name anyone I please as my beneficiary, I don't have to know them, which pretty much precludes my knowing their SIN; and
d) no one in their right mind would just hand over their SIN without knowing why.
Even when I pointed out that they could require my beneficiary to indemnify them before releasing the funds in question (i.e. ensure that she took on all responsibility for CRA remittances as required upon receipt of the funds), they refused.
Great customer service...and I'm sorry to say I'm a shareholder, to boot. >:(