Leave more for your heirs

To maximize the after-tax value of your estate, you probably know you and your spouse should move as much money as possible from non-registered accounts into TFSAs. “Proper estate planning requires understanding the tax consequences of different investments,” says Jason Heath, a fee-only adviser with Objective Financial Partners. “Topping up TFSAs prudently can reap big rewards.”

But with TFSAs, the devil is in the details. When you complete an application to open your TFSA, there’s a section where you can fill in the name of your “successor holder.” Only your spouse or common-law partner can be your successor. Like the “successor annuitant” on a Registered Retirement Income Fund (RRIF), the successor holder replaces the TFSA holder upon death and the plan continues with all rights passing to the successor. That means your TFSA continues growing tax-free until your successor dies.

“If you aren’t sure you checked the successor holder designation on the application form when you opened the account, catch up with it at your local institution and do it now,” says Gordon Pape, author of Tax-free Savings Accounts: A Guide to TFSAs and How They Can Make You Rich. “It could save you and your family thousands of dollars in taxes.”

If you’re helping set up a TFSA for a young adult who doesn’t have a spouse or common-law partner, complete the beneficiary section of the application. That means you’ll name the person who will own the TFSA proceeds after death. At that point, the account ceases to be a TFSA and any income earned from the date of your death is subject to taxes in the hands of the beneficiary. Your child should go back and name a successor annuitant if he or she gets married. For more, go to Canadian Revenue Agency.