Seizing the Opportunity: Why Now is the Perfect Time for an Estate Freeze and Trust Planning

In times of economic uncertainty and fluctuating real estate values, business owners and high-net-worth individuals may feel hesitant about making financial decisions. However, the current environment presents a rare opportunity to optimize your tax and estate planning strategies by freezing your assets and introducing a trust. Taking proactive steps now can lead to significant long-term tax savings and wealth preservation for your family.

What is an Estate Freeze?

An estate freeze is a tax planning strategy that locks in the current value of your assets, such as shares in a private corporation or real estate holdings, for tax purposes. By implementing an estate freeze, future appreciation of your assets will accrue to the next generation or a trust, reducing the taxable capital gain on your estate when you pass away.

Given that asset values — especially in real estate — are currently depressed, executing a freeze now can minimize the eventual tax liability on future growth. This strategy allows you to plan your estate efficiently while maintaining control over your wealth.

Why is Now the Right Time?

1. Depressed Asset Values = Lower Tax Exposure

The real estate market in many parts of Canada has softened, and valuations for private businesses may be lower due to economic uncertainty. This presents an ideal window to freeze your assets at a lower valuation, reducing the future tax burden on your estate.

2. Future Growth is Transferred to Your Heirs or a Trust

By structuring your estate freeze properly, any increase in asset value post-freeze will accrue to your chosen beneficiaries or a family trust. This allows you to pass down wealth more tax-efficiently, ensuring your heirs benefit from the appreciation without triggering large tax liabilities.

3. Income Splitting and Creditor Protection Through a Trust

Introducing a trust as part of your estate planning can offer significant benefits, including:

• Income Splitting – A trust can distribute income to multiple family members, potentially reducing the overall tax burden by leveraging lower personal tax brackets. However, the Tax on Split Income (TOSI) rules restrict the ability to split income among family members unless they are actively engaged in the business. Despite these limitations, capital gains earned by a trust can often be distributed more tax-efficiently to beneficiaries, allowing for some tax minimization strategies.
• Creditor Protection – Assets held in a trust may be shielded from current and future creditors, providing an additional layer of financial security. More about this subject here.
• Flexibility – A discretionary trust allows you to control the timing and manner in which your beneficiaries receive wealth, ensuring responsible financial management.

4. Wasting the Freeze to Further Reduce Tax on Death

A well-structured estate freeze doesn’t just minimize future tax liability — it can be further optimized by implementing a wasting freeze strategy. Once the freeze is in place and you hold fixed-value preferred shares in your corporation, you can gradually redeem and cancel those shares over time. This approach effectively reduces the value of your taxable estate at death, further decreasing the capital gains tax liability.

By strategically redeeming your preferred shares each year and using the resulting funds for personal expenses or reinvestment outside the corporation, you can slowly “waste” the frozen value of your estate. This can be particularly beneficial if structured alongside dividend planning, ensuring that the redemptions are carried out in a tax-efficient manner.

5. Locking in Favorable Tax Planning Before Potential Policy Changes

Government policies and tax rules are always subject to change. Implementing an estate freeze now ensures you capitalize on existing tax advantages before any legislative shifts that may increase estate tax burdens.

How to Get Started

Executing an estate freeze and trust planning requires careful structuring and professional guidance. Here’s what you should consider:

1. Valuation of Assets – Obtain a fair market valuation of your business or real estate holdings to establish the freeze.
2. Corporate Restructuring – If you own a business, consider restructuring your share ownership to issue fixed-value preferred shares while new common shares (with future growth potential) are transferred to a trust or family members.
3. Trust Formation – Work with a professional to set up a family trust tailored to your wealth preservation goals.
4. Wasting the Freeze – Implement a strategy to systematically redeem preferred shares over time to further reduce tax exposure.
5. Review of Estate Plan – Ensure your overall estate plan aligns with the freeze strategy and includes appropriate wills and powers of attorney.

Act Now to Secure Your Financial Future

The current economic climate is an opportunity — not a setback — when it comes to tax and estate planning. Freezing your assets at today’s values and implementing a trust structure can ensure that you and your family benefit from long-term tax savings and wealth protection.

If you’re considering an estate freeze or want to explore the benefits of trust planning, our team is here to help. Contact us today to discuss how you can take advantage of these strategies to secure your financial future.