An Estate Freeze and Your Family Trust

| Published on
August 17, 2015
| Updated on
September 17, 2021
By Jeffrey (JP) McAvoy
| Published on
August 17, 2015
| Updated on
September 17, 2021

An Estate Freeze and your Family Trust are two very powerful tax planning tools.  If you’re smart about your tax planning you won’t pay a dime of tax on any growth of your assets after you turn a certain age if you undertake an estate freeze at the appropriate time.

An estate freeze is the process of taking certain assets you own today and freezing them at their current values so there is no future increase in your tax burden.

In this way you can attribute future growth of those assets to accrue to anyone you choose – usually your children or other heirs you plan to see benefit upon your demise.  There are numerous benefits a number of which are as follows:

Multiplying the capital gains exemption.  You may be able to shelter up to $800,000 of capital gains per beneficiary on any assets transferred to a family trust on an estate freeze where you own shares of a qualified small business corporation or qualified farm or fishing property.

Income splitting. An estate freeze can transfer ownership of assets to your heirs, either directly or indirectly through a trust. These assets can then provide regular income to your heirs and that income will be taxed in their hands as opposed to yours.

Reducing probate fees.  An estate freeze can cap the value of the frozen assets. In this way you can say you own less at the time of your death thereby reducing taxes you would otherwise have to pay, including probate fees.

Clearly establishing and managing tax burdens upon death.  By freezing the value of an asset today, you will be able to clearly establish what your tax burden will be which will help you manage your estate’s terminal tax bill.  In addition, you will be able to manage the burden with, among other things, life insurance, if it’s best for you.

Deferring tax.  Tax deferred is tax saved.  You can defer income tax on the growth of value of your assets for years, perhaps for as long as it takes your heirs to pass.  When you consider the time value of money the savings can be substantial.

Credit Proofing.  You can protect assets from creditors by transferring them to your heirs or a family trust as part of an estate freeze.

Divorce.  It may be possible to use a freeze to minimize the claims of future spouses or ex-spouses through effective planning.

It goes without saying that before you complete an estate freeze, you should be happy with the growth of your assets that you’ve been able to enjoy to date before you get used to the idea that the future growth will accrue to someone else. You should also be confident that there will be meaningful growth of the assets in the future. After all, if there isn’t going to be much future growth, then there won’t be much growth to have taxed in the hands of your heirs.  If, after making these determinations, you are interested in proceeding with an estate freeze, feel free to speak with JP McAvoy at our Barrhaven office in Ottawa or any of the other professionals at ConductLaw and we will be pleased to assist you with your estate freeze.

About the Author

JP McAvoy
JP is the Managing Partner of Conduct Law, a Business Law Firm with Offices in Ottawa, Ontario and Orlando, Florida. His legal practice is focused on business and business owners.  Called to the bar in 2001, he received his LL.B and JD from Queen’s University in 1999. He represents a diverse range of clients throughout Canada, the United States, and Eastern Asia. In addition to practicing law, JP is a College Professor, Best-Selling Author and Host of the top rated podcast The Millionaire's Lawyer.  JP's accomplishments earned him an Ottawa Business Journal Forty Under Forty Award. Read JP's full profile.