What is an estate freeze and how does it help with beneficiary planning?

An estate freeze is a technique used by business owners and investors to lock in the value of their assets at today's level for the purpose of calculating future capital gains tax, while shifting future growth to designated family members or a trust. It is most commonly implemented through a corporate reorganization involving the exchange of common shares for preferred shares.

After the freeze, the business owner holds preferred shares with a fixed value (their "frozen" interest), while family members or a trust hold new common shares that will capture all future growth in the business. The owner's eventual tax liability is capped at the gain accrued to the freeze date, rather than growing with the business's future appreciation.

From a beneficiary planning perspective, an estate freeze lets parents or grandparents pass wealth to the next generation in a structured, tax-planned way during their lifetime. The new common shares can be held in a family trust, giving trustees flexibility about who ultimately receives the benefit — and when.

Estate freezes are complex and must be carefully implemented to comply with income tax rules. They require an experienced corporate tax lawyer and accountant working together. This type of planning is typically worthwhile for business owners with significant assets expected to grow substantially in value.