An estate freeze fixes the value of the asset that is frozen, such as shares of a corporation, in the hands of the owner until the time of death, allowing the freezor to calculate the expected tax liability that arises on death.
A further benefit of an estate freeze is the accrual of the post-freeze growth in value in the hands of other persons, usually the owner's family. This makes the estate freeze an effective way of transferring value to the future generation, and hopefully, defer the tax that would accrue on the future growth to the time that the asset is sold by the persons who are to benefit from the future growth.
Under certain circumstances, the receiving family member may be able to claim the lifetime capital gains exemption, so that the tax-saving based on that exemption can be multiplied among several family members when the shares the family member receives in the course of the estate freeze transaction qualify as shares of a "qualified small business corporation".
The estate freeze is also worth considering when the market is experiencing a low, as is the case during the ongoing Covid-19 pandemic. This would permit the owner/parent to fix the capital gain at a lower value, attracting less tax on death. A subsequent increase in value is passed on to the beneficiaries of the freeze. However, care needs to be taken that the value of the assets is not too low at the time of the freeze, as the current owner may wish to retain a reasonable amount of value. The balance that needs to be achieved will depend on the amount of the asset value to be frozen, the age of the freezor and a number of other factors that may be of importance to the person who is implementing the freeze. One size does not fit all.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.