A key difference with naming a spouse as successor holder instead of beneficiary is that income and growth from a TFSA after death is taxable to the beneficiary. Not so with a successor holder.
Given your wife’s account, Scott, had no designation at all, it will be payable to her estate by default. But fear not—there is a solution.
As executor of her estate and sole beneficiary, you can have the account transferred from her TFSA to your own without impacting your TFSA room. You may not be a successor holder or beneficiary of the account, but you are a beneficiary of her estate. The caveat is the transfer must be done by December 31, 2023 (the end of the year after her death). This should be plenty of time to settle her estate and distribute her assets.
What happens to a TFSA after death
Now, onto the estate distribution and your question about probate taxes. Probate or estate administration tax is payable on the value of an estate’s assets at the time of death. It is important to distinguish estate assets from other assets of the deceased.
A beneficiary for a TFSA, registered retirement savings plan (RRSP) or life insurance policy receives their distribution without the assets passing through the estate. Typically, only a death certificate is required. Jointly held assets or certain assets like private company shares may also be able to avoid probate.
Probate fees and TFSAs
Probate or estate administration tax is payable on the value of the assets, including TFSAs, that are passing through an estate and distributed based upon the terms of a will. So, if an asset is not held jointly or does not have a beneficiary or successor holder, it will generally be subject to probate.
Probate requires paperwork to be submitted to the province or territory and a probate fee or estate administration tax payable based on the value of the relevant assets. Alberta, Quebec, and the territories have flat fees ranging from $0 to $525. The other provinces have rates of 0.4% to 1.695%, typically on estate values above a certain threshold.
A fee of 1% on a large estate would cost $10,000 per $1 million of assets, so could amount to a significant cost in dollars, albeit a relatively small cost in percentage terms. Some people go to great lengths to avoid probate and potentially trigger more significant costs or other risks.