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April 29, 2021

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. 



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...