TFSA and Estate Planning (Probate)
When you die, your assets are normally distributed according to your will, and this includes your TFSA. So you have the ability to decide* who gets your TFSA’s tax-free money!
You can do this by naming either a “successor holder” or a “designated beneficiary” (or both) to your TFSA. You should do this when you initially set up the TFSA, but you can actually do this at any time and can change things around as often as you like. If you have a regular bank-issued TFSA, they will take care of it with your instructions; if you have a self-directed TFSA, you can do it yourself or get an independent financial advisor to take care of it for you.
*If you live in Quebec, you actually don’t get to decide. In Quebec all TFSAs must pass through the deceased person’s estate along with their other assets. In this case you may have to make special provisions in your will to specify who gets the contents of your TFSA.
This can only be your spouse or common-law partner. The good thing is that your spouse or common-law partner will get to continue using the TFSA as if it were their own…the tax-free status of the TFSA remains unchanged, and they just follow the rules like they would for their own TFSA.
These can be anybody other than your spouse or common-law partner. This includes your former spouse or common-law partner, your children, a favorite grandchild, a friend, anybody you like. It can also be an entity such as a registered charity. The main difference is that the tax-free status of the TFSA ends with your death, and the money is not tax-sheltered, which means your designated beneficiary will have to pay tax on the money.
When you set up a TFSA, it’s a good idea to designate both a successor holder as well as a designated beneficiary (and if you have more than 1 TFSA, make sure to do this for each one). This way, in case both you and your successor holder die at the same time, you still have a back-up plan with your designated beneficiary. If both your successor holder and designated beneficiary are still alive when you die, the successor holder gets the TFSA.
Does the TFSA need to be included in the probate application?
That’s a good question, though one that’s beyond the scope of this website. You might wish to consult: https://www.taxtips.ca/tfsa/holderdeath.htm as it contains more information on probate with regards to TFSA accounts.