Learn what an estate freeze is and if it is a good option for you to use to make sure that you get the most out of your money. Here, we discuss when to undertake an estate freeze and ask whether now is a good time.
As an example: As part of business succession, a parent may decide to freeze their entitlement to the corporation’s current value, thereby allowing the corporation’s future growth to accrue to another shareholder or a family trust.
A flexible estate freeze will allow you to transfer future growth in value of your business to future generations. The freeze will effectively cap the value of your shares at that date, allowing future generations to enter at a nominal amount. You will be able to freeze your estate value and have control over more effective tax planning.
Why Freeze Now?
The days of the 2008 financial crisis seem far behind. Since the 2008 financial crisis, we have seen huge economic growth. Your company’s valuation has probably increased exponentially over the past few years. Then. Came. COVID.
Revenues plummeted 50% to 100%, and unemployment rose at a similar rate. However, we seem to be over the worst and this pivotal point presents a seldom seen tax planning opportunity for business owners. It really is an ideal time to do an estate freeze and defer taxes for years to come, in the process securing your company’s future, your own, and that of your beneficiaries.
What if You Recently Froze the Value of Your Shares?
People who froze their shares within the last few years before the pandemic are probably “underwater”. By this, we mean that fair market value of the estate or enterprise is now below cost, and the holders of the common shares might have a nil value.
This is where an estate refreeze will help you. In a refreeze, the redemption price of the preferred shares is reduced to their fair market value, thereby reducing the potential tax liability, and deferring all future growth from this point on to the common shareholders.
Please remember that this is not intended as a substitute for personalized tax advice from your wealth advisors. Get in touch with Nour Private Wealth (NPW) today to strategically plan when to undertake an estate freeze.
This commentary is provided for general informational purposes only and does not constitute financial, investment, tax, legal, or accounting advice. Please speak with your accountant about tax or accounting advice. Individual circumstances and current events are critical to sound investment planning and not all investments are suitable. Please speak with your investment advisor prior to investing.