April 13, 2022

Author: The Link Between

You own your own business and recently, you’ve heard some talk about estate freezes. So, what exactly is an estate freeze and should you consider implementing one? There are several things that should be considered but let’s start with what an estate freeze is. Essentially, it’s a planning technique used by business owners to pass the growth of their company onto the next generation and cap the value that will be subject to income tax on the sale of their shares in the company or on their death. It usually involves the owner exchanging their common shares for fixed-value preferred shares on a tax-deferred basis and then issuing new common shares to the next generation either directly or through a trust. The preferred shares would have a redemption value equal to the common shares at the time of transfer. This caps the tax liability on these shares and the future growth will attribute to the new common shares issued to the next generation.

Having said that, there are certainly some factors to consider before an estate freeze is completed – you don’t want to freeze too early!

Value - first and foremost, is the value of your company. You need to determine if you, and your spouse, will have enough to fund your retirement.

Age - your age and the ages of your children are also important factors – you don’t want to freeze too early and pass too much on to the next generation.

Deferral - rather than issuing shares directly to your children, a trust is often used to defer the decision as to who gets the shares and when. This is important if the children are minors but also allows flexibility in planning for ownership for older children in case some are active in the business and others are not.

Keep in mind that the above are only a few factors to consider when thinking about whether to do an estate freeze. Insurance is often used by business owners to deal with the tax liability on death and to equalize the estate between active and non-active children. When you’re ready, reach out to your trusted insurance advisor to find out if an estate freeze is appropriate for your business and how insurance can be a valuable planning tool to achieve your estate planning goals.

Mutual funds, approved exempt market products and/or exchange traded funds are offered through Investia Financial Services Inc.

The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This blog was prepared by Jason Desaulniers who is a Investment Funds Advisor at Excalibur Executive Planning Inc., a registered trade name with Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia Financial Services Inc. The information contained in this presentation comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability.