Estate Freeze Planning
Your company will be worth more in ten years than it is today. Decide now who that growth belongs to, and cap your own tax bill at today's number.
What this covers
An estate freeze fixes the value of your company shares at today's fair market value, usually by exchanging them for fixed-value preferred shares, so that future growth, and the tax on it, passes to your children or a family trust. Your eventual tax bill is capped at today's number. From here on, the growth belongs to them.
Who this is for
- Owners of a private company worth a few million or more, and growing
- Parents who want children to benefit from the growth without handing over control
- Families planning a trust, or a future sale that uses more than one capital gains exemption
- Owners who have been told to “freeze” and want to know what they would be agreeing to
What you end up with
The point of the exercise
A tax bill you can name
The gain on your shares is fixed at today's value, so it can be quantified and funded instead of guessed at.
Growth where you want it
Every dollar the company earns from here belongs to the next generation or the trust.
Control kept
You keep the votes and the decisions while the value moves on.
Estate Freeze Planning in detail
What a freeze does
On death you are taxed as if you had sold your shares at market value. A freeze swaps your common shares for preferred shares fixed at today's value, and new common shares go to your children or a trust for a nominal amount. Every dollar of growth from that day belongs to them. Your own bill stops growing, becomes a known number, and can be funded with insurance or planned share redemptions.
Who holds the growth
The new shares can go straight to your children, or to a discretionary family trust whose trustees decide later who receives what. A trust means you need not predict today which child will run the business or which marriage will last, and it can let several family members each claim the lifetime capital gains exemption on a future sale. In return it carries the twenty-one-year rule, which has to be planned for years ahead.
You keep control
Votes and value are separated on purpose. You keep the voting shares, or a thin class of voting shares is issued to you, and you can be a trustee of the family trust. The next generation holds the growth. You still run the company.
The numbers
A company worth $3 million today, growing to $8 million by the time of death. No freeze: a gain of about $8 million on the final return and tax in the region of $2.1 million at British Columbia's top rate, owed by an estate holding shares and no cash. With a freeze today: a gain of about $3 million, tax in the region of $800,000, funded in advance. The other $5 million of growth sits with the children or the trust, taxed only when they sell. Illustrative figures; the rates move, the shape does not.
Cost and timing
Two to four months from first meeting to signed documents, with a valuator, your lawyer and us. The cost depends on how many corporations are involved and whether a trust is settled; we quote it after the first conversation, which is free. Set against the tax it caps, a freeze is rarely the expensive part of a succession plan.
How it runs
What working together looks like
Value the company
A written valuation at the freeze date. The whole structure rests on this number.
Decide who holds the growth
Children directly, a discretionary trust, or both, with the trustees and beneficiaries named.
Paper it and file the elections
Your lawyer drafts the shares and the trust; we design the steps and file the elections that make the tax deferral real.
Review every few years
Redemption schedule, dividend policy, the twenty-one-year date, and a refreeze if value has fallen.
Questions
Estate Freeze, answered
General information about how the rules work, current at the time of writing — not advice about your situation. Speak to Ray Loucks before acting on any of it.
How big does my company need to be before a freeze makes sense?
There is no fixed threshold. If the growth you expect, times the tax rate on it, comfortably exceeds the cost of the structure, a freeze pays for itself; for companies in the low single-digit millions and growing, it usually does. It also makes sense earlier when the aim is to bring children or a trust into ownership, or to multiply the capital gains exemption on a future sale.
Do I lose control of the business?
No. You keep the voting shares or are issued a thin class of them, stay a director, and can be a trustee of the family trust. The next generation holds the growth; you run the company.
Can an estate freeze be undone?
It can be adjusted and, if necessary, collapsed. A fall in value is met with a refreeze at the lower figure; a change of plans can unwind the structure, with tax consequences that are best designed for in advance.
Read moreWhat does an estate freeze cost?
Three parts: a valuation, the legal work on the shares, trust deed and corporate records, and the tax design and elections. More corporations cost more; no trust costs less. We quote a figure after the first conversation, which is free.
Do I still pay tax when I die?
Yes, on the frozen value. Your preferred shares are deemed sold at their fixed value on death and the gain accrued to the freeze date is taxed then, unless they pass to a spouse, which defers it. The point is that the number is known in advance and can be funded or reduced over time by redeeming shares.
Often needed together