Q&A: TFSA beneficiaries

Question: My wife and I each invested $5,000 in TFSAs for 2009 and expect to do so again in 2010. I wonder if you could comment on the following:

Can we name each other as successor account holder AND name our daughter and son as beneficiaries – or is the latter not necessary? The goal being that in order to avoid probate, if one of us dies the other would get the TFSA but in the event we die simultaneously the kids would get them.

If you think we should name the kids as beneficiaries (and if I understand correctly, you suggest not to name joint beneficiaries as this could complicate matters) I assume we probably should each name one child as beneficiary of our account.

Another question for you: while I realize our limit is $5,000 each per year, can we invest our $5,000 for 2010 at a different financial institute or are we limited to one TFSA account? My thinking here is that often you can get a higher interest rate for a few months when opening a new TFSA. – Bill H.

Gordon Pape answers: Succession laws are determined by each province and territory so a strategy that may work in one part of the country may be offside elsewhere. Certainly, you should each name the other spouse as successor account holders; that can be done in all jurisdictions except Quebec. If you are given the option by the financial institution that holds the plans to name both a successor holder and a beneficiary, it is important to clarify that the beneficiary designation will only apply if the named successor holder is deceased. You may wish to obtain legal advice about this as this is a brand-new area of succession law.

As with RRSPs, you may have as many TFSAs as you wish. There is no legal limit on the number of plans but the more accounts you open the more complicated it becomes to keep track of them.

I would also like to comment on your remark about “a higher interest rate”. I am aware that many people are using TFSAs to invest in GICs. During this period of low interest rates, I think that is a bad idea. The whole purpose of a TFSA is to maximize tax-sheltered profits. A GIC at 3% will only produce $150 interest a year on a $5,000 investment. If you get 3.5%, that only adds $25 more. I suggest you consider moving to a self-directed plan so you can broaden your range of options.

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