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What To Know About Estate Freeze For Succession Planning

What to Know About Estate Freeze for Succession Planning

As a business owner, succession planning is crucial. It’s important to get things in order, such as where your assets will be allocated or what happens to your estate should something happen to you. A common and vital topic to discuss in succession planning is an estate freeze. What is it? 

Estate Freeze

An estate freeze “freezes” the current value and tax liability of capital property. Consider it a snapshot of a business’s fair market value at a specific moment, and then having future growth accrue to new shareholders. 

Do You Need an Estate Freeze

A common reason people undergo an estate freeze is to lock in the business value to allow future growth to be attributed to another family member. Doing so defers all or portions of the income tax liability that would arise when the business owner dies. 

Also, an estate freeze may be a part of succession planning. When properly executed, there could be significant income tax savings. Another reason people undertake an estate freeze is to satisfy a family law planning objective.

Factors to Consider in an Estate Freeze

Everyone’s circumstances are unique. Still, some factors must be considered: 

  • Age of the freezor: Older freezors make an estate freeze more appropriate. 
  • Net worth of the freezor: Net worth must be where existing assets will provide for all their needs throughout their life. In this case, an estate freeze may be appropriate. 
  • Business growth potential: The higher chances of business growth in the future, the greater the chance the business may be sold in the future. Therefore, it’s more likely an estate freeze would be appropriate. 
  • Family: Consider if one child has a greater share of the family business than another. If it does, an estate freeze is advisable to allow a successful transition on tax deferrals. 

How Long Does It Take

If you are considering an estate freeze and you’re worried about how long it takes, this will largely depend on existing and future corporate structure. In the case you only have one company, the freeze won’t likely be complicated and will be completed in a couple of months. 

On the other hand, if there are multiple companies, the freeze can be more complicated, which will take more time. 

Caution to the Wind

An estate freeze must be undertaken with caution. Keep in mind that once implemented, it would be difficult to undo it. Therefore, it’s important that your mind is completely made up before you do an estate freeze. Also, make sure you seek professional advice to weigh your options and determine if an estate freeze is ideal for your situation. 

Sort Out Your Estate Now

Planning your succession as early as now will go a long way. So, if you’re considering an estate freeze, it’s crucial you speak with a professional that can guide you through the process. As mentioned, an estate freeze is challenging to undo, which is why you need to be 100% sure that it’s really something you want to do for your assets. 

Ontario Wills & Estate Plans is one of the best Ottawa estate planning lawyers today. We guarantee quality legal service. Contact us today.

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