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TFSA Beneficiary Vs Successor. Which is better?

A beneficiary and a successor are two different terms with different meanings in the context of a Tax-Free Savings Account (TFSA).

A beneficiary is a person designated to receive the funds in a TFSA in the event of the account holder’s death. The beneficiary designation is made by the account holder when they open the TFSA, and it can be changed at any time. If the account holder dies, the funds in the TFSA are transferred directly to the beneficiary, without going through probate. The beneficiary can be a spouse, child, sibling, or any other person or entity chosen by the account holder. A beneficiary receives proceeds of TFSA as of date of death, tax-free, however, any growth between the time of original account holder’s death and actual transfer of money to beneficiary will be taxable income to beneficiary.

A successor, on the other hand, is a person designated to take over the TFSA in the event of the account holder’s death. The successor designation is made by the account holder when they open the TFSA, and it can also be changed at any time. If the account holder dies, the TFSA is transferred to the successor, who becomes the new account holder. The successor can ONLY be a spouse or common-law partner. (Children, sibling, or any other person chosen by the account holder other than spouse can only be designated as beneficiary).

The main difference between a beneficiary and a successor is that a beneficiary receives the funds in the TFSA after the account holder’s death, while a successor takes over the TFSA and becomes the new account holder. In other words, a beneficiary receives the funds as a one-time payment, while a successor continues to manage the funds in the TFSA as the new account holder.

Regardless of these rules and regulations, It’s always a good idea to consult with a financial advisor or tax professional to understand the specific rules and options available for your TFSA.

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