Estate Freeze | Personal and business | Business Owner Solutions
An estate freeze is a strategy designed to minimize income taxes due at death as a result of the deemed disposition of capital property, by freezing that disposition at an earlier point in time so that any future gains accrue to the intended beneficiaries. Various techniques can be used, but they all lock in the value of an asset at a point in time, and pass future growth or profit on to the beneficiaries.
The deceased is deemed to have disposed of all capital property upon death. This deemed disposition can result in taxable capital gains on the appreciation in value of the assets. While it may be possible to defer the recognition of those gains by rolling over the assets to a spouse or common-law partner at the deceased's adjusted cost base, the deferral ends upon the death of the spouse or common-law partner.
Is it possible to defer the income tax for another generation?
Yes, if the estate consists of family business to be transferred to the next generation and the next generation will be actively continue same business. Otherwise, it is not possible to do so if the deceased owned the assets at death. However, it is possible to transfer the assets before death. There will be a deemed disposition upon transfer of the assets to the next generation and any appreciation prior to the transfer will be taxed.
However, capital appreciation after the transfer will not be attributed to the settlor and will not be taxed until the next generation disposes of the assets or dies.
Methods of Freezing an Estate
There are several methods of effecting an estate freeze including the following:
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selling or gifting assets to intended beneficiaries prior to death
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transferring assets to an inter vivos trust
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creating a new holding company
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reorganizing the share structure of an existing corporation
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