What happens to your TFSA when you die

Your TFSA doesn't vanish when you die, but what happens next depends entirely on who you named as your beneficiary - and whether you did the paperwork right.

Name your spouse or common-law partner as the "successor holder" and the account transfers to them completely intact. They get your money, your contribution room, and the tax-free status stays put. It's like the account was always theirs. But this only works if you specifically used the term "successor holder" on the beneficiary form. Just writing "beneficiary" creates a different, messier outcome.

If you name your spouse as a regular beneficiary instead of successor holder, they still get the money - but the TFSA itself dies with you. The CRA treats this as a withdrawal on your date of death. Your spouse gets the cash, tax-free, but they'll need their own TFSA contribution room to shelter it again. Any growth that happens between your death and when they actually receive the money gets taxed.

Name anyone else - kids, siblings, friends - and the same thing happens. The account collapses, they get the money tax-free, but future growth is taxable unless they have their own TFSA room to deposit it into.

Here's the part that catches people: if your TFSA grows between your death and when the estate finally distributes the money, that growth gets taxed in the hands of whoever receives it. Your TFSA had $50,000 when you died, but by the time your estate settles eight months later, it's worth $55,000? That $5,000 growth is taxable income for your beneficiary.

The successor holder designation avoids this problem entirely. The account just continues as if nothing happened.

But successor holder only works for spouses and common-law partners. You can't make your adult child a successor holder, even if you wanted to. The CRA is strict about this.

What if you never named anyone? Then your TFSA becomes part of your estate, gets distributed according to your will, and the tax-free status ends on your date of death. Messy and expensive, especially if your estate takes time to settle.

Most people assume their spouse automatically gets everything the right way. That's not how registered accounts work. Without the right beneficiary designation, even your spouse might face unnecessary taxes and complications.

TaxSplit.ca can show you how much TFSA room different family members might have available - useful context when you're thinking about who should receive what and whether they can shelter the money again. The 2025 TFSA limit is $7,000 per person, so if you're passing along a large TFSA balance, your beneficiaries might not have room to shelter it all immediately.

Check your TFSA beneficiary forms now. Make sure you used "successor holder" for your spouse if that's what you want. Most banks and brokerages will let you update this online or with a simple form.

Your TFSA can be one of the smoothest assets to pass along - if you set it up right.