Why an estate freeze makes sense now GlobeMoney
CommentsDavid A. Altro is the managing partner of Altro LLP, which specializes in cross-border tax and estate planning, corporate and real estate and has offices in Canada and the United States. Bradley Richard Thompson is an international tax partner at Altro LLP.
The recent deep losses in both the stock market and the Canadian dollar are key because many estate tax plans are based on valuation. In Canada, one such tax plan is known as an “estate freeze.” In effect, this is the process of taking certain assets that you own today, freezing the tax on death at today’s value, retaining the voting control while passing future growth to children or other designated beneficiaries.
Canada also allows a “lifetime capital gains exemption” of up to about $880,000 if you sell the shares of your active business. So planning for a freeze, and what assets to freeze, should be carefully considered. The estate freeze technique in this example would have Bob and Mary exchange their holding company shares for “fixed value preferred shares” that carry all of the voting power in the family holding company. In other words, Bob and Mary would retain control over the family nest egg during their lifetimes. A new class of non-voting common shares could be issued directly to children or to a family trust created for the benefit of Bob and Mary’s children.
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