An estate freeze is just what it sounds like – a freeze on estate planning. Inside this guide, discover if you should consider an estate freeze. According to Investopedia, an estate freeze is an asset management strategy whereby an estate owner seeks to transfer assets to his or her beneficiaries, without tax consequences. That sounds like an excellent idea. Who wouldn’t want to make the most of your gift to the next generation?
Implementing a Freeze
An estate freeze is typically designed and executed by asset managers. They use various investment vehicles to achieve advantages for high net worth individuals who wish to minimize the tax burden of inheritance for their beneficiaries.
Appreciation and inflation can drastically increase an individual’s estate tax burden. An estate-reducing program is much more effective if it includes strategies that shift appreciation and income to a decedent’s intended beneficiaries.
Potential Advantages Associated with an Estate Freeze
An estate freeze will provide a family with the flexibility to transfer future growth, and the tax liability on death, to the next generation. Freezing the current value could provide tax deferrals and tax exemptions worth millions of dollars.
“Income splitting” with the children and grandchildren of the freezer means tax savings on dividends on the shares that they hold, as they will often be in a lower tax bracket. They will therefore be taxed at a lower rate than the freezer. However, the Canadian Income Tax Act (Canada) might negate any income splitting benefits.
It can also effectively pass ownership and control of a family legacy asset, such as a family enterprise, into the hands of the next generation. Using a trust can ensure that the structure is flexible. It gives the freezor time to consider the options and perhaps learn through time who the best family members are as beneficiaries.
You can also save on provincial probate fees payable by the estate by redeeming the preference shares while the freezor is alive, by using multiple wills, or by transferring shares to a joint partner trust. The aim is asset protection and this could be the best way to do this for your beneficiaries.
Estate freeze strategies are typically only accessible to accredited investors— sometimes known as “sophisticated” investors—who generally hold greater assets than retail investors.
Please remember that this should not be regarded as a substitute for personalized tax advice from your wealth advisors on whether you should consider an estate freeze. Get in touch with Nour Private Wealth (NPW) today to discuss your objectives and circumstances.
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.