TFSA successor holder vs beneficiary: only a spouse keeps the account

How does a successor holder differ from a designated beneficiary?

A successor holder takes over the account itself. A designated beneficiary receives what's in it. The CRA recognizes exactly these two types: a successor holder is a survivor (spouse or common law partner) named as the new holder in the TFSA contract or the will, and a designated beneficiary is anyone else named, including a spouse who wasn't named successor holder canada.ca.

The successor holder definition is in subsection 146.2(1) of the Income Tax Act: the survivor must acquire all the holder's rights, including the unconditional right to revoke any beneficiary designation the deceased made laws-lois.justice.gc.ca. "Survivor" means the person who was the spouse or common law partner immediately before death, so a child or a sibling can never be a successor holder canada.ca.

With a successor holder, the value at death and every dollar earned afterwards stay sheltered, and the deceased isn't treated as receiving anything from the TFSA canada.ca. With a beneficiary, the payout is tax free up to the fair market value on the date of death, and earnings after that date and before the estate is settled are taxable canada.ca.

What changed for surviving spouses on January 1, 2026?

A spouse named only as beneficiary can now shelter the post death earnings too. The Budget 2025 Implementation Act, No. 1 (S.C. 2026, c. 3, assented to March 26, 2026) rewrote both rules, deemed in force January 1, 2026 laws-lois.justice.gc.ca.

Before 2026, the exempt contribution a survivor could designate was capped at the account's value at death, so post death earnings could not go back in without using room. Section 83 of the amending Act removed that cap: the limit in subsection 207.01(1) is now the survivor payment less other contributions already designated against it, or nil if the deceased had an excess TFSA amount or more than one survivor was paid laws-lois.justice.gc.ca. The CRA says that from January 1, 2026, earnings accrued after death up to the end of the rollover period can be designated as an exempt contribution canada.ca.

Section 67 changed the income side for trusteed TFSAs. Under paragraph 146.2(9)(b), the amount a recipient includes in income is now the payment, minus the amount designated as an exempt contribution, minus the trust's designated amount, capped at the fair market value at death laws-lois.justice.gc.ca. So a designated exempt contribution now reduces income, not just room. The CRA's own checklist further down its beneficiary page still lists the old cap of the value at death; the Act no longer contains it.

The conditions for the designation are unchanged. The survivor contributes to their own TFSA during the rollover period, which ends December 31 of the year after death canada.ca, and files Form RC240 within 30 days after making the contribution, or later if the CRA allows canada.ca. The form is on the CRA's canada.ca.

How is a $120,000 TFSA taxed under each designation?

Your client dies on March 10, 2026, holding a trusteed TFSA at a brokerage worth $120,000, with no excess amount. The brokerage pays the account out on November 16, 2026, at $124,500: $120,000 of value at death plus $4,500 earned after death.

The rows follow the CRA's rules for each recipient canada.ca and the 2026 formula in paragraph 146.2(9)(b) laws-lois.justice.gc.ca. The child cannot designate anything as exempt, and a contribution over their room is taxed at 1% a month, as the TFSA overcontribution penalty page explains. Their 2026 room is on the TFSA limit page.

The successor holder row wins on simplicity. If the survivor already has a TFSA, they hold two, can collapse them by direct transfer without touching room, and don't inherit any of the deceased's unused room canada.ca.

When does a trusteed TFSA start paying tax after the holder dies?

It depends on the type of TFSA. A deposit or annuity contract TFSA with no successor holder stops being a TFSA at death; the holder is deemed to dispose of it at fair market value, and later earnings are taxed under the normal rules, for example interest on a T5 canada.ca.

A trust arrangement, the usual form at a brokerage, stays non taxable until the end of the exempt period: the earlier of the day the trust ends and the end of the first calendar year that begins after death laws-lois.justice.gc.ca. If anything is still undistributed after that, the trust becomes a taxable inter vivos trust from January 1 of the next year, is deemed to dispose of and reacquire its property at fair market value at the end of the exempt period, and files a T3 return every year canada.ca.

A December death gives the executor barely a year. Push the issuer to pay out well before the deadline, because a trust that misses it adds a T3 filing to the estate work alongside the T3 return for the estate.

What happens if the TFSA was over the limit at death?

The deceased owes 1% a month on the excess for each month up to and including the month of death, and the legal representative files Form RC243 with Schedule A (RC243-SCH-A) for that period canada.ca.

A successor holder then inherits the problem. At the start of the month after death, the survivor is deemed to contribute an amount equal to the excess to their own TFSA, and if that creates an excess for them, it's taxed at 1% a month while it stays in canada.ca.

A spouse named as beneficiary loses the rollover instead. If the deceased had an excess TFSA amount, or payments go to more than one survivor, the exempt contribution limit is nil unless the CRA allows more laws-lois.justice.gc.ca. Check the deceased's TFSA room before advising the survivor to roll anything in.

Which designations fail, and what happens to the money then?

Quebec doesn't recognize successor holder designations for TFSAs, or beneficiary designations for deposit TFSAs and trust arrangements, except on annuity contracts. A Quebec survivor can still contribute the amount received by December 31 of the year after death and file RC240 within 30 days canada.ca.

A successor holder can be named in the will instead of the contract, but only if the will gives the successor all the same rights as the original holder, including the right to cancel or change beneficiary designations. The survivor also needs a SIN, or an individual tax number if not resident canada.ca.

With no successor holder or beneficiary in the contract or will, the TFSA goes to the estate and is distributed under the will canada.ca. That matters for probate in Ontario: a TFSA with a beneficiary designation stays out of the estate administration tax value, and one without counts toward it ontario.ca. The rates are on the Ontario probate fees page.

A qualified donee named as beneficiary generally has to receive the funds within 36 months of death, and the executor can then ask the CRA to change the year of death return to claim the donation credit canada.ca.