Top 10 Financial Concepts for Business Owners: #9 Spread the Wealth

When a business starts increasing in value, there may come a point where the owner wishes to lock in a certain value and let the remaining growth accrue to other family members.

An Estate Freeze is a legal estate planning technique used in Canada to lock in the current value (and tax liability) of a capital property for one person, while attributing the value of future growth of that capital property to another person. By ‘freezing’ the value of the corporation’s shares at a certain point along its growth trajectory, the future growth can accrue towards other owners, for example family members. However, the control of the company can still remain in the hands of the primary owner.

Some benefits of an estate freeze include the ability to possibility to income split with the new owners of the company, aiding in the succession of the business to certain family members, and increased creditor protection.

Another major benefit is the potential of increasing the amount of the Lifetime Capital Gains Exemption, currently at $1,250,000 per person. If an estate freeze is accomplished by way of establishing a Family Trust to hold the company shares, potentially more than one person could take advantage of the exemption, thereby magnifying the amount of the tax exempt gain.

 

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