If you name your spouse or common-law partner as the successor holder, they automatically become the new account holder and the TFSA continues growing tax-free.

You can also name a spouse or partner as a beneficiary. In that case, they generally have until Dec. 31 of the year following the year of death to transfer the TFSA proceeds into their own TFSA as an exempt contribution, without using any contribution room. They must file the required paperwork with the CRA.

Recent rule changes have largely eliminated the tax difference between naming a spouse as a successor holder or beneficiary, provided the necessary steps are completed on time.

If you don’t name a spouse or partner, they may still be able to benefit from the TFSA if they inherit the proceeds through the estate.

For all other beneficiaries, the TFSA’s tax-free status ends at death. While the account’s value at the date of death can generally be paid out tax-free, any income or investment growth earned afterward is typically taxable to the beneficiary or the estate.

The rules underscore the importance of reviewing TFSA beneficiary designations as part of your estate plan to ensure your savings are passed on as tax-efficiently as possible.