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Succession and Estate Planning
Canada has no inheritance tax. What it has is a deemed disposition at death — and for an owner whose wealth is locked inside a company, that is often the largest single tax event of their life.
What this covers
Succession planning decides who takes over a business and when. Estate planning decides what happens to everything you own. In Canada the two are joined by one hard fact: death triggers a deemed disposition of your property at fair market value, so the tax bill arrives whether or not a plan exists. Planning determines its size, its timing, and who has to find the cash.
Who this is for
- Owners whose shares have grown substantially in value and will keep growing
- Families holding real estate, investments, and an operating company across several corporations
- Parents wanting to bring children into ownership without handing over control
- Executors and surviving families dealing with an estate that was not planned for
What you end up with
The point of the exercise
A capped, quantified liability
You know what the tax bill is, when it lands, and where the money to pay it comes from.
Growth in the right hands
Future increases in value accrue to the next generation instead of enlarging your own final tax return.
Deadlines that do not surprise anyone
Trust anniversaries and estate windows are tracked, so the remedies are still available when they are needed.
Succession and Estate Planning in detail
What actually happens on death
For tax purposes you are treated as having sold everything you own immediately before death, at fair market value. Accrued gains on shares, real estate, and investments become taxable on a final return. Registered plans are generally brought into income unless they roll to a qualifying beneficiary. A transfer to a surviving spouse or a qualifying spousal trust normally defers the whole event, which is why the real problem usually surfaces on the second death rather than the first.
The awkward part is liquidity. A private company share worth several million dollars produces a tax liability but no cash. Without planning, the estate is forced to sell, borrow, or strip value out of the company at a worse rate than necessary — often at the exact moment the business is least able to absorb it.
The estate freeze
An estate freeze fixes the value of your existing shares at today's fair market value, usually by exchanging them for fixed-value preferred shares, and lets future growth accrue to new common shares held by the next generation or by a family trust. Your eventual tax bill is capped at today's number. Everything the business earns from here is taxed in the hands of the people who will actually own it.
The mechanics run through the reorganization provisions of the Income Tax Act — most often a share capital reorganization under section 86, or a rollover under section 85 or section 51. All three defer tax on the exchange, provided the shares are structured properly and the value is defensible. That last point matters more than any other: a freeze is only as good as the valuation it is built on, and a price adjustment clause is standard protection.
Timing is the whole game. A freeze done while a company is worth two million dollars caps a very different liability than the same freeze done at eight million. The best moment is usually earlier than it feels.
Family trusts, and the twenty-one-year clock
A discretionary family trust holding growth shares gives flexibility a direct gift cannot: the trustees decide later which beneficiaries receive what, so you do not have to predict in advance which child will run the business or which marriage will last. It also allows a capital gain on a future sale to be allocated among several beneficiaries, potentially multiplying access to the lifetime capital gains exemption on qualified small business corporation shares — currently more than $1.25 million per person and indexed annually.
Trusts carry their own deadline. Every twenty-one years a trust is deemed to dispose of its capital property at fair market value, which can produce a large gain with no sale and no cash. The property can usually be rolled out to Canadian-resident beneficiaries before that date, but the decision needs to be planned years ahead, not discovered in the anniversary year. If your family trust was settled in the early 2000s, that date is close.
Probate, privacy, and the BC arithmetic
British Columbia charges probate fees on the gross value of the estate passing under the will: nothing on the first $25,000, $6 per $1,000 on the portion between $25,000 and $50,000, and $14 per $1,000 above $50,000 — roughly 1.4 percent at the top end, on value rather than income. Assets that pass outside the estate are not caught.
That creates a set of well-established tools: multiple wills to keep private company shares out of the probated estate, alter ego or joint partner trusts for a settlor aged 65 or over, and named beneficiary designations where they are appropriate. Each has trade-offs — an alter ego trust loses the graduated rate estate benefit, and joint ownership between generations is a reliable source of both attribution problems and litigation. None of these should be adopted because they are on a list.
Post-mortem planning: the double tax nobody expects
Left alone, private company shares can be taxed twice — once as a capital gain on the deceased's final return, and again when the corporation distributes its value to the beneficiaries as a dividend. The tax system provides remedies, but they are time-limited.
A loss carryback under subsection 164(6) must generally be used in the estate's first taxation year. A pipeline strategy depends on the estate's timing and on the corporation's circumstances. The graduated rate estate status that makes much of this work lasts only thirty-six months from the date of death. Executors who wait a year before getting tax advice routinely lose the best option available to them.
Transfers to children, and the newer routes
Section 84.1 has long penalised selling shares to a corporation controlled by your own children, converting what should be a capital gain into a dividend. Amendments enacted in 2024 created a genuine intergenerational business transfer route, with immediate and gradual variants, both carrying strict conditions about transferring control, management involvement, and holding periods. In parallel, employee ownership trusts became available as a way to sell to the people who already run the business.
Both are real options and both are unforgiving about conditions. They are worth assessing early, because the qualifying conditions constrain how the transfer has to be built.
How it runs
What working together looks like
Inventory and value
Every corporation, trust, property, and registered plan gets listed, with adjusted cost base, paid-up capital, and a working view of fair market value.
Quantify the current exposure
We calculate what the tax bill would be if death occurred today, and identify where the cash to pay it would have to come from.
Choose the structure
Freeze, trust, multiple wills, insurance, or some combination — selected against your actual objectives, including the ones that are not financial.
Implement with counsel
Wills, trust deeds, share reorganizations, and elections are drafted and filed with your lawyer so the legal documents and the tax positions match.
Diarise the deadlines
Twenty-one-year trust anniversaries, graduated rate estate windows, and valuation refreshes go into a schedule rather than into memory.
Questions
Succession & Estate Planning, 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.
Does Canada have an estate tax or inheritance tax?
No. There is no federal estate tax and no inheritance tax payable by beneficiaries. What Canada has instead is a deemed disposition: immediately before death you are treated as having sold your capital property at fair market value, and the resulting gains are taxed on your final return. Provinces also charge probate fees on the value of the estate. The practical effect can be similar to an estate tax, but the mechanism is different, and the difference is what planning works with.
What is an estate freeze, and when should we do one?
An estate freeze fixes the value of your shares at today's value and redirects future growth to the next generation or a family trust, capping your eventual tax liability at today's number. The right time is when the business has real value, is expected to keep growing, and you have a view — even a provisional one — about who should benefit from that growth. Because a freeze caps value as at the date it is done, waiting is rarely neutral.
How much are probate fees in British Columbia?
On the gross value of the estate passing under the will: no fee on the first $25,000, $6 per $1,000 on the portion between $25,000 and $50,000, and $14 per $1,000 on everything above $50,000. That works out to roughly 1.4 percent on a large estate, plus a filing fee. Assets passing outside the will — through a properly structured trust, a valid beneficiary designation, or a second will covering private company shares — are not included in that calculation.
What is the twenty-one-year rule for family trusts?
A Canadian trust is deemed to dispose of its capital property at fair market value every twenty-one years, triggering tax on accrued gains even though nothing has been sold. The usual response is to roll the property out to Canadian-resident beneficiaries before the anniversary date, but that has consequences of its own and needs several years of lead time. If a trust was settled around the turn of the century, the anniversary is imminent and should be on the agenda now.
Can I leave my company shares to my children without triggering tax?
A rollover on death is automatic only for a spouse or a qualifying spousal trust, and for qualified farm or fishing property transferred to a child. Ordinary private company shares left to children are a taxable deemed disposition. The lifetime capital gains exemption may shelter part of the gain if the shares qualify, and the intergenerational business transfer rules enacted in 2024 create a route for a genuine transfer of the business — but each of those depends on conditions that have to be satisfied in advance.
My parent has died and there was no plan. Is it too late?
Often not, but the window is short. Several of the most valuable remedies — the subsection 164(6) loss carryback, pipeline planning, and the graduated rate estate rates themselves — depend on steps taken in the first taxation year of the estate or within thirty-six months of death. If you are an executor dealing with private company shares, this is worth a conversation in the first months rather than at the first filing deadline.
Often needed together