If you are a business owner, the current market downturn offers a unique estate planning opportunity. Business owners can use an estate freeze to fix the value of their business during a market low. Then when the business value recovers in the future, they can transfer more to their heirs at a lesser value.
Want to know more? Register for our upcoming estate freeze webinar on May 7th here.
What is an estate freeze?
An estate freeze is an asset protection strategy whereby a business owner seeks to defer capital gains tax on a portion of their business’s value, by ‘freezing’ its present value from a tax perspective, and then allowing others (i.e. family members) to share in its future growth.
Why do an estate freeze?
From an estate planning perspective, quantifying the capital gains taxation that is going to occur on the passing of the business owner can have numerous benefits. For example, if a business is valued at $10 million on an owner’s passing, we can predict there is an approximate $2.5 million taxation liability. In turn, we can put a plan into place to ensure those taxes are paid without disrupting or destroying the business. There is also a tax planning opportunity to eliminate that $2.5 million taxation liability over the business owners’ lifetime, thus reducing the capital gains tax owed even further.
An estate freeze can also greatly enhance your business succession plan, as it gives your successors the opportunity to ‘get some skin in the game’ With an estate freeze, your successors can see that any growth or future value is being attributed to them, helping to strengthen their ongoing participation in the business, all while the current business owner retains control.
Already ‘froze’ and now your shares are underwater?
If a business owner implemented an estate freeze a few years ago, they may now find that the fair market value of their business is less than the redemption price, and their successors are now holding nil value common shares. Although an estate freeze is generally regarded as irrevocable, there are ways to thaw and refreeze. This can also be a less arduous process the second time around.
Why start now?
If you are considering an estate freeze, but holding out for when things return to normal, or even waiting to see if the market reduces further, we encourage you to start the conversations with the experts now. Implementing an estate freeze takes time, as well as the input of various professionals.
MacMillan Estate Planning offers a holistic approach to estate planning with all the people, processes, and technology that you need to plan your estate – either in person or virtually. Our team of lawyers, accountants, financial planners and counsellors offer a refreshing alternative to the banks, law firms and accountancy firms. Register for one of our upcoming seminars. You can also take advantage of our complimentary virtual consultations; call us or email us: 1-833-266-6464 and firstname.lastname@example.org.