What is an estate freeze? How does this type of estate planning work? Find out here.
At the same time, make an appointment with your tax advisor to discuss your options as the information herein should not be considered a substitute for personalized wealth management advice.
What Is an Estate Freeze?
In a nutshell, an estate freeze aims to limit the future growth in (all or a portion of) the value of property or your assets by having you, as their owner or “freezor”, swop them for assets with a fixed value. Once the freeze is in place, future appreciation of the original assets will accrue to the advantage of your successors, often family members, key employees, or a trust established for their benefit.
While there are no inheritance or estate taxes in Canada, the Canada Revenue Agency does impose a capital gains tax at death. According to Section 70(5) of the Income Tax Act (ITA), all your capital assets will be deemed as having been sold for proceeds equal to their fair market value on the date of your death. One exclusion of this deemed disposition capital gain is if your spouse (or common-law partner) or a qualifying spousal trust is the beneficiary. If this is the case, then the transferred assets will automatically defer capital gains tax.
Should your wealth comprise an incorporated family business or investment portfolios, your estate is vulnerable to substantial income tax liability – eroding the amount your beneficiaries will inherit. The more successful you have been at growing your investments or business, the greater the tax burden your estate will face.
Estate Freeze and Asset Management Strategies
Freezing strategies vary according to the nature of the assets, your aims, the level of flexibility you require, and so on. Just as asset management is designed to increase your wealth by avoiding unnecessary risks and costs, an estate freeze protects your estate from taxes and creditors.
Setting a fixed value for assets combined with reorganisation of preferred shares, new common shares, the distribution of dividends, and succession roles can be strategically structured to protect the next generation of shareholders.
Nour Private Wealth (NPW) is a Canadian company with a team of wealth advisors servicing clients across seven provinces. For more information on all forms of wealth creation and preservation, contact us today and speak to one of our wealth advisors. We will gladly further fill you in on the question, “What is 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.
