TFSAs & RRIFs: What’s the difference between beneficiaries, successor holders and successor annuitants?

FPAC responds: 

When you have a registered account, such as a tax-free savings account (TFSA), a registered retirement savings plan (RRSP) or a registered retirement income fund (RRIF), you have the option—depending on which account you have—of naming a beneficiary or a successor for that account. First, let’s break down the differences between beneficiaries and successors.

• A beneficiary inherits the assets in your account without inheriting the account itself.

• A successor takes ownership of your account and all of the assets in your account. 

Whether you can name a beneficiary or successor depends on which registered account you have, but this chart shows the options: 

So, what’s the difference between a successor holder and a successor annuitant? For a TFSA, the successor is called a successor holder (short for successor account-holder). For an RRIF, the successor is called a successor annuitant. 

Beneficiary and successor options for TFSAs and RRIFs

Now, let’s break down the differences between beneficiaries and successors by account type. 

Tax-free savings accounts

On your TFSA, you can list either a beneficiary or a successor holder. When naming a beneficiary, the beneficiary can be anyone you like or can even be your estate. And when naming a successor holder, you can only name your spouse or common-law partner as the successor holder of your TFSA. 

The differences between a beneficiary and a successor holder for a TFSA

One of the main differences between TFSA beneficiaries and successors is how the assets in the account are taxed. TFSA account beneficiaries will receive the assets in your TFSA tax-free, up to the date of your death. But they would be taxed on any growth in the TFSA after that date.

A successor holder, however, takes over the ownership of your TFSA account. They can roll your account into their TFSA account without impacting their TFSA contribution room. They do not pay tax on any asset growth from the date of your death to when they withdraw from the account.

A beneficiary can use the assets in your TFSA to contribute to their own TFSA using their available contribution room. For example, suppose your beneficiary had $5,000 of available contribution room. In that case, they could use up to $5,000 of the assets in your TFSA to contribute to their own TFSA—but they couldn’t contribute more than that amount. 

However, there is one exemption to this rule—the exempt contribution. Say, you name your spouse or common-law partner as your TFSA account beneficiary. They may be able to use the assets in your TFSA to contribute an amount not limited by their available contribution room. In this case, they would “roll over” the assets in your TFSA to their TFSA.

There is a short window after a TFSA holder’s death to make an exempt contribution. If you want to ensure your surviving spouse or common-law partner can keep your TFSA intact, it is much simpler to name a successor holder. Still, this provision allows a spouse or common-law partner to use your TFSA assets to make a TFSA contribution above their available contribution room. 

Registered Retirement Income Funds

On your RRIF, you can list either a beneficiary or a successor holder. For naming a beneficiary, the beneficiary can be anyone you like or can even be your estate, just as with a TFSA. But with naming a successor holder, the successor annuitant designation for RRIFs is limited to your spouse or common-law partner, also similar to a TFSA. 

Note that a beneficiary designation on your RRSP does not “carry over” when you convert your RRSP to an RRIF. Instead, you must make a new designation, whether a beneficiary or a successor annuitant. The successor annuitant designation can only be elected for RRIFs, not RRSPs.

Differences between a beneficiary and a successor annuitant for an RRIF

Naming a successor annuitant allows your spouse or common-law partner to take over your RRIF when you die, without the need to transfer out the funds. As with a successor holder for a TFSA, the successor annuitant for an RRIF would effectively assume ownership of the RRIF account with no tax consequences to the estate.

The successor annuitant then has the following options: 

• continue receiving the RRIF payments, 
• transfer the assets into their own RRIF,  
• or if they prefer to delay the income, they may transfer the assets into their RRSP (if 71 or younger). 

If they decide to move the RRIF assets to their RRSP, their RRSP contribution room would not be impacted. (That is, they don’t need to worry about whether they have enough RRSP contribution room.)

If you name your spouse or common-law partner as a beneficiary of your RRIF (to be clear: not a successor annuitant), the assets in your RRIF will be transferred to your spouse, and your RRIF account would then be closed. However, your estate will not have to include the RRIF’s value in your final tax return or pay income tax. This is also true if you name a financially dependent minor child or grandchild as your beneficiary. In that case, the beneficiaries will receive the assets of the RRIF up to the date of death. 

If you name a beneficiary who is not your spouse, common-law partner, or a financially-dependent minor child or grandchild, the assets in your RRIF at the date of your death would be included in your final tax return. 

What’s the best option? 

As for choosing which is the best option for your registered accounts, the options depend on whether you have a qualified survivor—such as a spouse, common-law partner or, for RRIFs, a financially-dependent minor child or grandchild—to leave the assets in a TFSA or RRIF. 

While the successor holder/annuitant option usually provides greater simplicity and ease of management, everyone’s situation is filled with intricacies that would make it worthwhile to speak with a qualified financial advisor who knows your circumstances.

Scott Rizzuto is an Associate Advisor with IPC Securities Corporation in Grimsby, Ontario. He is a Certified Financial Planner with a Chartered Investment Manager designation.

Qualified Advice is written by members of FPAC (the Financial Planning Association of Canada), a MoneySense content partner. Working closely with governments, regulators, financial planners, academia, vendors and the general public, FPAC’s goal is to set standards and principles that will allow financial planning to evolve into a knowledge-based profession that ultimately commands the credibility, public awareness and respect afforded to other advisory professions.

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