Is signed documentation required when opening a TFSA? | Tax Free Savings Accounts | Discussion forum

Thank you Loonie, Bill and Norman1 for your comments on my dilemma with lack of documentation for Successor Holders for the TFSAs we established at WOBC. You have confirmed my suspicions that this could be a problem. I got to work to get this resolved.

Before I get into that, a couple of observations:

Loonie, we already had a savings account at the CU where we opened our TFSAs. In fact, it is the same CU that you alerted the forum to in July, 2021 that had a decent (for the time) 18-mo. GIC rate of 2% for a 200K deposit. I took advantage of that and that GIC matured in December 2022. We used that money to purchase the TFSAs in January, 2023. Thanks again for posting that information.

Bill, I am intrigued about the solution to a problem like this can be resolved within one’s will. I had not considered that before. I checked our wills and there is nothing specific about that. I presume a codicil could be drafted to cover that situation. I will be looking into it. Thanks for sharing that info.

Norman1, your in-depth analysis, as always, stirred me to do some digging too and the following is what I came up with. Thanks for your input.

Excerpts from The Government of Canada site dealing with The Tax-Free Savings Account state the following [emphasis is mine]:

Successor holder

In provinces or territories that recognize a TFSA beneficiary designation, the survivor can be designated as a successor holder in the TFSA contract or in the deceased holder's will.

A survivor can be named in the deceased holder's will as a successor holder to a TFSA if the terms of the will state that the successor holder receives all of the holder's rights including the unconditional right to revoke any beneficiary designation, or similar direction imposed by the deceased holder under the arrangement or relating to property held in connection with the arrangement.

If named as the successor holder, the survivor will become the new holder of the TFSA immediately upon the death of the original holder.

This rule applies for all three types of TFSA: deposit, annuity contract, and trust arrangement.

The deceased holder is not considered to have received an amount from the TFSA at the time of death if the holder named their survivor as the successor holder of the TFSA. In this situation, the TFSA continues to exist and the successor holder assumes ownership of the TFSA contract and all of its contents.

The TFSA continues to exist and both its value, at the date of the original holder’s death, and any income earned after that date continue to be sheltered from tax under the new successor holder.

The issuer will notify us of this change in ownership.

So, even under these circumstances there is a reliance on the TFSA issuer to understand the status of the TFSA to put into action the ‘change in ownership’. If the issuer does not recognize a successor holder status it stands to reason they would not take this action. Possibly this is resolved at the issuer level or later with the presentation of the will. I am not sure what obligation a FI would have in this circumstance.

To avoid any of this going the wrong way it seems imperative for the issuer to provide documents that are signed by both issuer and holder and will verify the beneficiaries of the holder’s TFSA including the Successor Holder, if any.

I went searching for a beneficiary form on the WOBC site but instead came up with the Terms and Conditions that spell out the obligations with respect to beneficiaries including a Successor Holder. Again the emphasis within the text is mine:

Wealth One Bank
Terms and Conditions
Tax Free Savings Accounts (TFSA)
...

9. Designation of Beneficiary. Where permitted under applicable law, You may designate a Successor Holder or beneficiary (the “Beneficiary”) to receive the Plan Assets after Your death.

You may only make, change or revoke a designation by providing Us with written notice signed by You in a form acceptable to Us or prescribed by Us or by valid will under applicable law. In order to be effective, any designation or change or revocation notice must be delivered to Us before any payment as a result of Your death has been made hereunder. Any designation, amended designation or revoked designation will be valid on the day following its receipt by Us or, in the case of a valid will, as of the day of execution of the will. We will not accept designations that are irrevocable.

So, there you have it. A written and signed designation must be made to establish a Successor Holder according to WOBC’s own Terms and Conditions.

I now had enough information to pursue this directly with WOBC. I wrote to them via their help email address and explained the situation. Shortly I had a reply, apologizing for the error and a copy of WOBC’s: “Beneficiary Designation for Registered and Non Registered Plan”.

We have completed and signed two copies of these forms which will be mailed Monday. WOBC will need to fill in the portions of the forms they are responsible for and sign the document. I have asked to have copies of that completed document returned to us for record keeping purposes.

For point of clarity there is only a Successor Holder designated in our TFSAs. There are no other beneficiaries named.

Looks like you have it covered, Bill. I am definitely going to look into adding this provision to our wills. I still like the issuer documentation as a first-level understanding of the status of beneficiaries. The will provision will make the process indisputable. Thanks again for pointing me in that direction.