I am also curious about an answer to this question. Last time I checked at PCF, they were unable to assign a beneficiary to the account - could only be addressed through your will.
Beneficiary Designation for TFSA's-Question
TFSA's federal legislation allows for designation of a beneficiary. It is my understanding that only a few provinces have the same enabling legislation. Does anyone know if Ontario has implemented this legislation in the last budget?
If not does this mean that if the owner of a TFSA died today the assets would be taxed at full value provincially as part of the estate?
If not does this mean that if the owner of a TFSA died today the assets would be taxed at full value provincially as part of the estate?
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The Federal TFSA legislation is silent on designation of beneficiary because this is a matter of provincial authority. I believe most provinces are planning on adding designations of TFSA but I think it is only law in BC, Alberta, PEI and Nova Scotia. Until completed in other provinces, the assets in the plan would be distributed in accordance with your will, or failing that provincial estate law. This doesn't mean there will be a tax liability. The value of the TFSA on date of death passes tax free to the beneficiary, there would only be tax liable on any difference in value from date of death to the date of final distribution. Note, this would be true even if you were able to designate a beneficiary to your TFSA. The only exception is naming a spouse as successor annuitant (just like for an RRSP or RRIF). Naming a spouse as successor annuitant prevents a tax liability and doesn't require the spouse to "have" the contribution room for the roll over of funds.
The beneficiary designation legislation for TFSA's was included in the Ontario provincial budget. It is not law yet, but when it passes, Ontario will allow direct beneficiary designations.
Thanks Sask Saver and TaxGuy for clarifying this for me. I guess it's time to arrange for a codicil to our wills just to be certain all bases are covered.
Forgive me for being lazy and not rooting this out myself, but I'm a bit squeezed for time...
I was checking my TFSA beneficiary/successor status, and I'm told by the bank that I have my spouse as successor and my mom as beneficiary. I'm in Ontario by the way.
Is it possible to have both a successor and a beneficiary?
If so, does the successor take precedence?
If so, is there a scenario when I would want to name a separate beneficiary?
Would ben/succ status on TFSA account take precedence over the will, or vice versa?
I was checking my TFSA beneficiary/successor status, and I'm told by the bank that I have my spouse as successor and my mom as beneficiary. I'm in Ontario by the way.
Is it possible to have both a successor and a beneficiary?
If so, does the successor take precedence?
If so, is there a scenario when I would want to name a separate beneficiary?
Would ben/succ status on TFSA account take precedence over the will, or vice versa?
Fascinating....there would only be tax liable on any difference in value from date of death to the date of final distribution.
But this part doesn't make sense. TFSA's are not taxable. So why should the beneficiary be liable for taxes in between death date and distribution date? And taxes on what? Original contribution amount? Adjusted value? Hardly seems fair either way.
I think the idea is that the beneficiary can just "take over" the TFSA money and can keep it in the TFSA even though they might have maxed out their own TFSA contribution room.Fascinating.
But this part doesn't make sense. TFSA's are not taxable. So why should the beneficiary be liable for taxes in between death date and distribution date? And taxes on what? Original contribution amount? Adjusted value? Hardly seems fair either way.
It's not a huge benefit (like the RRSP beneficiary) but it does preserve the account holder's TFSA status which passes to the beneficiary.
No, it's the other way around. A "successor account holder" is a person to whom the TFSA can be transferred intact. Only certain qualified people can be successor account holders - principally spouses. For a beneficiary, the account is liquidated and paid to the beneficiary. Unlike an RRSP there are no real tax consequences if this is done, but a beneficiary cannot acquire the extra TFSA contribution room.I think the idea is that the beneficiary can just "take over" the TFSA money and can keep it in the TFSA even though they might have maxed out their own TFSA contribution room.
It's not a huge benefit (like the RRSP beneficiary) but it does preserve the account holder's TFSA status which passes to the beneficiary.
I haven't heard of identifying separate successor & beneficiary. Better get your bank to check their legal department for clarification. Maybe their fine print brings the beneficiary into play only if both you and your spouse die together.
Guru - you are right. I was thinking more of the how it works for the successor.
Per TDW online form, http://www.tdwaterhouse.ca/apply/forms/529214.pdf
Successor holder: Only your spouse or common-law partner, as defined in the Income Tax Act (Canada), can be a successor holder. In the
event of your death, the name on the Account is changed to the name of the successor holder, who will continue to hold and operate the
Account as their own.
Beneficiary: You can designate a beneficiary in your Account. In the event of your death, the beneficiary will receive the proceeds in the
Account and the Account will be closed if:
1. You have not designated a successor holder, or
2. The designated successor holder was not your spouse or common-law partner at the time of your death or has pre-deceased you.
My institution's policy is not available online, so I can't verify that it follows the same reasoning.
http://forums.redflagdeals.com/will-beneficiaries-vs-account-beneficiaries-761885/
In Ontario the beneficiary seems to take precendence over the will, because the beneficiary designation makes the account pass directly to the beneficiaries and not through the estate. There is a legal case for arguing that a will created more recently might take precedence, but that would be a court battle.
In my case, I have a will that is clear on how my assets are to be distributed in the event of my death. I will keep my spouse as successor, and remove the beneficiary. In the event of a coincident death with my spouse, the assets will be distributed per the will.
Is it possible to have both a successor and a beneficiary? Yes
If so, does the successor take precedence? Yes
If so, is there a scenario when I would want to name a separate beneficiary? I think designation of a beneficiary, in addition to the successor, would be useful if you did not have a will and coincident death of spouse occurred. Funds would transfer faster and avoid probate taxes, being outside of the estate. Generally speaking, however, I think you'd be better off letting the will do its thing upon coincident death, and avoid conflict if the designations on the account and in the will are not the same.
Would ben/succ status on TFSA account take precedence over the will, or vice versa? Yes, ben/succ status on TFSA account seems to take precedence over the will.
Successor holder: Only your spouse or common-law partner, as defined in the Income Tax Act (Canada), can be a successor holder. In the
event of your death, the name on the Account is changed to the name of the successor holder, who will continue to hold and operate the
Account as their own.
Beneficiary: You can designate a beneficiary in your Account. In the event of your death, the beneficiary will receive the proceeds in the
Account and the Account will be closed if:
1. You have not designated a successor holder, or
2. The designated successor holder was not your spouse or common-law partner at the time of your death or has pre-deceased you.
My institution's policy is not available online, so I can't verify that it follows the same reasoning.
http://forums.redflagdeals.com/will-beneficiaries-vs-account-beneficiaries-761885/
In Ontario the beneficiary seems to take precendence over the will, because the beneficiary designation makes the account pass directly to the beneficiaries and not through the estate. There is a legal case for arguing that a will created more recently might take precedence, but that would be a court battle.
In my case, I have a will that is clear on how my assets are to be distributed in the event of my death. I will keep my spouse as successor, and remove the beneficiary. In the event of a coincident death with my spouse, the assets will be distributed per the will.
Is it possible to have both a successor and a beneficiary? Yes
If so, does the successor take precedence? Yes
If so, is there a scenario when I would want to name a separate beneficiary? I think designation of a beneficiary, in addition to the successor, would be useful if you did not have a will and coincident death of spouse occurred. Funds would transfer faster and avoid probate taxes, being outside of the estate. Generally speaking, however, I think you'd be better off letting the will do its thing upon coincident death, and avoid conflict if the designations on the account and in the will are not the same.
Would ben/succ status on TFSA account take precedence over the will, or vice versa? Yes, ben/succ status on TFSA account seems to take precedence over the will.
Very thoroughly answered Ben. For some people the value of having a designated beneficary will increase with time as some of these TFSA's may get quite large, so keeping the money out of probate will become more important.
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