I recently came across an article titled TFSA Designations May Cause Estate Planning Problems written by Amin Mawani and published by Advisor.ca. The article highlights some important estate planning considerations for TFSA account holders.

In its April 2015 Budget, the Federal Government proposed raising the annual TFSA contribution limit from $5,500.00 to $10,000.00, and raising the cumulative TFSA contribution limit to $41,000.00. For many, these accounts have already become a substantial personal asset. This increased contribution room only increases the likelihood that these accounts will continue to grow into substantial estate assets for those who have and continue to contribute to them.

Without proper planning (i.e. without making the proper designations), one’s TFSA will revert to his or her estate on death, resulting in the unfortunate consequence of the account losing its tax-sheltered status, and rendering the funds subject to Ontario’s hefty probate fees.

Mawani’s article assists account holders by highlighting the various designation options available and by distinguishing between a designated successor-holder and a designated beneficiary. Mawani explains that an account holder may designate his or her spouse or common-law partner as a successor-holder and anyone else as a beneficiary. A successor-holder will trump a beneficiary if both are alive at the time of the original account holder’s death, and a beneficiary will trump the deceased’s estate if no successor-holder was nominated or if the successor-holder predeceases the account holder. If neither a successor-holder or a beneficiary are designated or alive at the account holder’s time of death, the account proceeds will then revert to the deceased’s estate.

Mawani goes on to explain the benefits of making such designations, including the fact that if such designations are made the account holder’s TFSA will not de-registered on death. The assets will remain continuously sheltered, and the successor-holder may make tax-free withdrawals after taking over ownership. In addition, he explains that the successor-holder can continue to have her or her own TFSA, with lifetime and annual contribution limits unaffected, or alternatively may choose to consolidate the deceased’s account into his or her own.

Finally, Mawani helpfully provides links to the designation forms for various Canadian institutions including BMO, Investors, RBC, Scotia and TD. The article is worth a read for anyone who currently contributing or planning to contribute to a TFSA.

Thank you for reading,

Ian Hull