An email came in this morning asking: Is it wiser for TFSA investors to designate their spouse as a beneficiary or successor holder?
It appears to be wiser to select successor holder, according to Gordon Papes The Ultimate TFSA Guide(2010). Pape writes: tax experts warn not to name your spouse/partner as a beneficiary but to use the successor holder designation.
If you specify your spouse as successor holder and subsequently die, then the TFSA should transfer to your spouse without probate fees and the usual waiting period for settling estates.
There are a couple of caveats. First, succession laws are a provincial responsibility, so they may have their own rules in this regard. Second, the civil code in Quebec allows only the beneficiary designation.
A successor holder who receives a TFSA can continue to manage it as if they stepped into the deceased spouses shoes (although they dont inherit any unused contribution room from the deceased). Or they can cash the TFSA out tax free.
A beneficiary can be anyone named to inherit a plans assets (successor holders can only be spouses). On the plan holders death, beneficiaries will receive the assets tax free and the plan will be terminated.
There are some wrinkles to be aware of. Avoid naming your spouse and others as joint beneficiaries because then your spouse might not enjoy the successor holder perks. Also, profits earned in the TFSA after death (as may arise while waiting for the estate to settle) are taxable in the hands of beneficiaries.