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Naming a US Spouse as Your TFSA Beneficiary Read This First

05.13.25 // Markets & Investing // Blog Article //

Written by Carson Hamill CIM®, CRPC™, FCSI®, Associate Financial Advisor & Assistant Branch Manager & Dean Moro BComm, CIM®, CRPC™, Financial Advisor & Associate Portfolio Manager

If you're a Canadian with a U.S. citizen or dual citizen spouse, naming them as the beneficiary of your TFSA might seem straightforward. But without proper planning, that decision can lead to costly U.S. tax issues for your spouse.

Here’s what you need to know before making that call.

The IRS Doesn’t Recognize the TFSA as Tax-Free

In Canada, a TFSA lets your investments grow and be withdrawn tax-free. The IRS doesn’t see it that way.

If your spouse is a U.S. person for tax purposes, they may have to report:

  • All TFSA income and gains as taxable on their U.S. return.
  • Passive Foreign Investment Companies (PFICs): If your TFSA holds Canadian mutual funds or ETFs, your spouse must file complex PFIC disclosures.
  • Form 3520: If the TFSA is considered a foreign trust, this form is required—it's time-consuming, expensive, and failure to file can trigger large penalties.

Why Filing Status Matters

How your spouse files their U.S. taxes directly affects how the TFSA is treated:

  • Married Filing Separately: No reporting of the TFSA is required.
  • Married Filing Jointly: The TFSA must be reported, including PFIC and potentially Form 3520. This is where things get complicated.

The Beneficiary Trap: Successor Annuitant vs. Regular Beneficiary

Many Canadians name their spouse as a successor annuitant—thinking it ensures a smooth transfer of the TFSA. But if your spouse is a U.S. person, this is usually the wrong move.

Why it’s a problem:

  • Your spouse inherits the TFSA account itself, not just the funds.
  • That means ongoing U.S. tax reporting for as long as the TFSA exists.
  • PFIC filings and Form 3520 could become a recurring headache—year after year.

The Better Move: Name Your Spouse as a Regular Beneficiary

To avoid ongoing U.S. tax issues, name your spouse as a regular beneficiary instead of a successor annuitant.

Why this works:

  • Upon your death, the TFSA is collapsed and paid out in cash.
  • Your spouse receives the full value tax-free in Canada.
  • There’s no ongoing IRS reporting, since they don’t inherit the account itself.
  • They can then reinvest the funds in a way that aligns with U.S. tax rules.

Case Study

Mark, a Canadian citizen, has a TFSA worth $80,000, invested in Canadian ETFs. His wife, Rachel, is a U.S. citizen living in Canada.

  • If Mark names Rachel as a successor annuitant, she inherits the TFSA—and inherits all the U.S. tax filing headaches, including annual PFIC disclosures.
  • If Mark names Rachel as a regular beneficiary, the TFSA is liquidated. She gets $80,000 in cash, tax-free in Canada, and free from U.S. filing burdens.

Bottom Line

For Canadians with a U.S. spouse, naming them as the TFSA beneficiary requires careful thought. Filing status, investment holdings, and the type of beneficiary designation all matter.

If your spouse files jointly with you for U.S. tax purposes, avoid naming them a successor annuitant. Opt for the regular beneficiary route instead—it simplifies things, avoids U.S. tax reporting, and preserves the full value of the account.

Planning ahead ensures your TFSA doesn't turn into a cross-border tax trap.

Next Steps

If you are planning on moving to Canada and need assistance with your investments, estate planning, and portfolio management, please call or email our team at Snowbirds Wealth Management, as we specialize in cross-border financial planning and wealth management. We work closely with experienced cross-border lawyers and accountants to ensure you have an integrated team in your corner.

About Snowbirds Wealth Management

Gerry Scott is a portfolio manager and founder of Snowbirds Wealth Management, an advisory firm focussed on the cross-border market. Together with Dean Moro and Carson Hamill, associate financial advisors with Snowbirds Wealth Management, they provide investment solutions for Americans living in Canada, and Canadians residing in the United States. Licensed in both Canada and the US, they provide tailored investment solutions to minimize the tax burden when moving assets across borders.To schedule an introductory call, please click here.

Statistics and factual data and other information are from sources RJLU believes to be reliable but their accuracy cannot be guaranteed. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities nor is it meant to replace legal, accounting, taxation or other professional advice. We are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. The information is furnished on the basis and understanding that RJLU is to be under no liability whatsoever in respect thereof.

Raymond James (USA) Ltd. advisors may only conduct business with residents of the states and/or jurisdictions in which they are properly registered. Investors outside the United States are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this site. Raymond James (USA) Ltd. is a member of FINRA/SIPC.

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