How To Do An Estate Freeze in Canada? 2024 Guide

What Is an Estate Freeze?

Key Steps to Implementing an Estate Freeze

1. Determine Asset Value First, a professional valuation of your business or asset is needed to establish its current value. This sets the "frozen" amount and allows future gains to be shifted to others.
2. Choose the Right Freeze Technique Estate freezes aren’t one-size-fits-all. Some popular methods include transferring shares to a holding company, restructuring shares, or setting up a trust. Each approach has unique tax implications, so choosing the right method for your goals is crucial. If you are having difficulty in this process, then consulting with an experienced accountant can be the most viable option for you.
3. Transfer Growth Shares Next, transfer future growth shares to your family members or a family trust. By doing so, you lock in the current value of the assets under your control, while allowing future gains to benefit your heirs.

Techniques for an Estate Freeze

• Transfer to a Holding Company Moving assets into a holding company allows for control over the freeze while setting up a separate entity to manage growth. This is often the preferred approach for business owners looking to keep future growth within the family.
• Share Exchange in a Corporation Through a share restructuring, business owners can convert current shares into preferred shares and issue new common shares to family members. This locks in the value of the preferred shares, allowing future gains to build on the common shares instead.
• Use of a Family Trust Setting up a family trust to own the growth shares can offer privacy and asset protection while enabling long-term wealth transfer. Trusts can also help avoid probate and additional taxes.

Financial and Tax Benefits of an Estate Freeze

• Deferring Capital Gains Taxes An estate freeze can delay taxes on the appreciation of your assets until the next generation sells them. This way, your heirs pay taxes based on the locked-in value rather than the value at the time of your passing, which highlights the importance of estate planning for securing family wealth.
• Income Splitting Opportunities By transferring growth to family members, you can split income across lower-tax brackets, minimizing the family’s overall tax liability. This makes income splitting an effective way to reduce your tax burden.
• Minimizing Probate Fees Freezing your estate can reduce the amount subject to probate fees by using trusts or holding companies, particularly beneficial for larger estates.

Important Considerations and Risks

• Loss of Control Over Growth Shares When you shift growth shares, you’re relinquishing ownership over future gains. If not structured carefully, this can impact your control over certain assets or business operations.
• Potential Tax Complications Estate freezes require ongoing compliance with Canadian tax regulations. Working with experienced accounting firms in British Columbia, like CJCPA, helps you stay on top of reporting requirements and avoid any unexpected tax penalties.
• Professional Guidance Consulting with an estate planning accountant is crucial. Our expert team with 30+ years of experience provides tax-compliant strategies tailored to your financial goals, ensuring that your freeze plan maximizes the financial benefits while protecting against risks.

Let’s Wrap Up