When it comes to estate planning, particularly regarding Tax-Free Savings Accounts (TFSAs), there’s a critical move that married couples or common-law partners need to consider. Designating your spouse or partner as a successor holder rather than just a beneficiary can make all the difference when you pass away.

Wilmot George, the vice-president and head of tax, retirement, and estate planning at CI Global Asset Management, states that while not having a spouse named as a successor holder isn't catastrophic, it significantly simplifies the process. This vital designation allows your partner to take over your TFSA tax-free upon your death, easing the administrative burden during an already stressful time.

Think about it: if you’ve built a substantial TFSA, this move safeguards your financial legacy. Your partner can maintain the account and its tax-free status without worrying about contribution limits. This means your spouse can keep growing those savings into the future, preserving what you've worked hard to accumulate.

While you can name various individuals—friends, relatives, or others—as beneficiaries of your TFSA, the rules change slightly upon your death. The account is tax-free until death, but any gains accrued afterward are taxable. Imagine your TFSA increasing by $1,500 in the months after your passing; that amount would be taxed, regardless of the beneficiary's identity.

In contrast, a spouse or common-law partner designated as a beneficiary has the option to either take the proceeds in cash or transfer the total value at the date of death into their own TFSA without using their contribution room. However, remember: any increase in value post-death would be taxable, necessitating contribution space to mitigate future taxes.

To effect this transfer, your partner will need to complete the Canada Revenue Agency's RC240 form. Crucially, this transfer must be executed by the end of the year following your death to avoid complications.

Unsure of your current designation? Now is the perfect time to review your accounts and confirm whether you’ve selected a successor holder or a beneficiary. Making this adjustment with your TFSA provider can ensure that your spouse enjoys the maximum financial benefits during a challenging time.

By taking this proactive step, you can ensure that you protect your hard-earned TFSA funds and provide peace of mind for your loved one. Don’t leave your financial legacy to chance—act today!