Difference between beneficiary and successor in TFSA

Both beneficiary and successor are types of heirs.

Beneficiary and successor designations are possible in both RRIF (Registered Retirement Income Fund) and TFSA (Tax-Free Savings Account), though there are some small differences in how they work in these two programs.

A successor can only be a spouse, while all other heirs can only be beneficiaries. You can also name both a successor (for example, 40% to the spouse) and a beneficiary (for example, 60% to a child).

To simplify the difference between the two:

• If a husband dies and his wife is listed as the successor, the entire amount of his TFSA is transferred to the wife’s TFSA, regardless of her own contribution limit. For example, if the wife has $31,000 in her TFSA and the husband had $10,000, her new TFSA balance will be $41,000.
• If a beneficiary is named instead, they simply receive a check for $10,000. If the beneficiary has room in their TFSA, they can deposit the money into their own account. However, if they have used up their limit, they cannot deposit it into a TFSA.

If the wife is listed as a beneficiary, the CRA (Canada Revenue Agency) does allow the transfer of the deceased spouse’s TFSA funds to the surviving spouse’s TFSA, but a request must be made to the CRA for permission.

When the TFSA program started in 2009, there was no successor option—only the beneficiary existed. It's a good idea to check your current heir designation and ensure your spouse is listed as a successor, if that's your intent.

Difference between Beneficiary and Successor in RRIFs is: If you have a RRIF and there is a significant age gap (5+ years) between you and your spouse, it may be better to name your spouse as a beneficiary rather than a successor. Why? If a spouse is named as a successor, upon the death of the account holder, the payments to the spouse will continue under the same conditions as the deceased. For example, if the deceased was 75 and the surviving spouse is 68, the younger spouse would still have to receive payments based on the older spouse’s age formula. If the spouse is designated as a beneficiary, the RRIF can be rolled over into an RRSP, and the surviving spouse won’t need to withdraw from RRSP until he/she turns 71.