Critical: Beneficiary designations on your RRSP, TFSA, FHSA, and life insurance override your will. If your will says "everything to my spouse" but your RRSP names your ex, your ex gets the RRSP. Review these regularly.
Accounts with Beneficiary Designations
| Account | Can Name Beneficiary? | Tax Impact at Death |
|---|---|---|
| RRSP / RRIF | Yes | Full value taxed as income (unless spouse/common-law is beneficiary — tax-free rollover) |
| TFSA | Yes (beneficiary or successor holder) | Tax-free to beneficiary. Successor holder keeps the TFSA intact. |
| FHSA | Yes | Successor holder (spouse) or taxable to beneficiary |
| Life Insurance | Yes | Tax-free to named beneficiary |
| RESP | No direct beneficiary | Goes to estate; subscriber can name successor subscriber |
| Non-registered accounts | No | Distributed through will; deemed disposition triggers capital gains |
TFSA: Beneficiary vs Successor Holder
Successor Holder (Spouse Only) ✅
- • TFSA transfers directly to spouse
- • Doesn't use their TFSA room
- • Continues growing tax-free
- • Seamless transition
- • Best option for married/common-law
Beneficiary (Anyone)
- • Can name anyone (child, sibling, etc.)
- • TFSA is collapsed and paid out
- • Growth after death may be taxable
- • Bypasses probate
- • Good for non-spouse beneficiaries
RRSP: The Spousal Rollover
When you die, your RRSP is normally fully taxable as income on your final tax return. This can mean a massive tax bill.
Exception: If you name your spouse or common-law partner as beneficiary, the RRSP rolls into their RRSP tax-free. They pay tax only when they eventually withdraw.
Example: $500,000 RRSP at death. Without spousal rollover: ~$200,000+ in tax on final return. With spousal rollover: $0 tax now — spouse inherits the full $500,000.
Life Insurance Beneficiaries
- ✓ Tax-free — Life insurance proceeds are not taxable to the beneficiary
- ✓ Bypasses probate — Paid directly, not through the estate
- ✓ Fast — Usually paid within 30-60 days
- ✓ Protected from creditors — If a family member is named
Warning: If you name "Estate" as your life insurance beneficiary, the proceeds go through probate, may be subject to creditor claims, and could face probate fees. Always name a specific person when possible.
Common Mistakes
- Naming an ex-spouse — Divorce doesn't automatically change beneficiaries in all provinces
- Naming "Estate" — Triggers probate fees and delays
- Not naming anyone — Defaults to estate
- Naming minor children directly — Minors can't receive funds; use a trust instead
- Forgetting to update after life changes — Marriage, divorce, new children
- Conflicting with your will — Beneficiary designation always wins
Action Steps
- Log into every financial account (bank, brokerage, insurance)
- Check who is named as beneficiary on each account
- For TFSAs: name spouse as successor holder (not just beneficiary)
- For RRSPs: name spouse as beneficiary for tax-free rollover
- For life insurance: name specific people, not "Estate"
- Update after any major life event
- Keep a master list of all accounts and their beneficiaries