An estate freeze is a reorganization under which the shares of an incorporated business or a holding company are “frozen” for an amount equal to the value of the company or the holding at the time of the freeze. As a result of this planning, any future growth in the capital property is transferred to the benefit of children, family trust or employees.
The main advantage of an estate freeze is the "transfer" of any increase in value in the capital property, which would otherwise be taxable in the hands of the current shareholder, in favour of the beneficiaries selected by the person making the freeze.
By performing a freeze, you can minimize your estate taxes on death, which might otherwise have continued to grow. However, such freeze may have been implemented some years ago and, given the economic context that prevailed thereafter, the value of the company or the holding, has decreased.
By implementing once again a freeze at the current value of the company, you can minimize the taxes arising from your death and transfer the future growth in the company to your beneficiaries.
It may therefore result in a significant minimization of the tax payable on capital gains.
In this context, it is essential to obtain a valuation of the “freeze shares” or the existing shares of the company according to the general principles which are recognized for valuation.
A freeze combined to the creation of a family trust is a very flexible approach. If a freeze has already been used, it is suggested to create a second family trust in order to benefit of a new 21-year period before there could be a deemed disposition of shares. Of course, there are strategies available before the arrival of the 21st anniversary of the trust in order to prevent the realization of the accrued capital gain after 21 years.
By using a discretionary trust, the beneficiaries of the freeze could include not only the children but also the person who performs the freeze, which can help to recover all or part of the future growth in the capital property.
Several technical and non technical aspects must be considered and the members of our department will be happy to answer to all questions in this regard.
Finally, an estate freeze is only a part of a global tax and estate planning.
It may be an interesting opportunity to proceed today, a time during which the value of a company has decreased.