An 'estate freeze' is a common tax planning strategy. The owner of shares of a private company can 'freeze' the value of his/her shares and transfer the future growth of the company to other family members. The benefit of a freeze from an income tax perspective is that the future taxation of the growth of the company can be transferred to other family members particularly children, thus limiting the tax liability of the owner on death and deferring the tax to the next generation. If the shares qualify as 'qualified small business corporation' shares, a freeze can enable such other family members to claim the lifetime capital gains exemption. A freeze is most commonly used to freeze the value of a company that owns a business, real estate or public securities. If the owner has already implemented a freeze, a 're-freeze' at a lower value can be effected if the value of the company has dropped.
A freeze or re-freeze should be considered in a down market because it may provide the owner with the opportunity to freeze his/her shares at a lower value than would otherwise have been possible.
Originally published May 28, 2020.
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