In the Harold Ballard case (1992), Justice Farley described an estate freeze as follows:
"Usually an estate freeze is a mechanism to reduce the taxes which would otherwise be payable on the death of a parent by allowing appreciation of the value of the parent's assets to accrue to the benefit of the children, thereby limiting the gain that would otherwise be taxable on the death of the parent. As such a common denominator for estate freeze plans generally is the exchange of growth assets for non-growth assets.
"In simple terms, an estate freeze involves valuing the assets of a corporation and issuing preferred shares to the parent having a fixed value equal to the value of the assets and common shares to the children having a nominal value. Since the preferred shares have a fixed value, all appreciation in value would accrue to the common shareholders. It is common in estate freeze transactions that the preferred shareholder continue to exercise control of the corporation notwithstanding that the continuing economic interest of the preferred shareholder in the fortune of the corporation is only to ensure that the realizable assets exceed the fixed value of the preferred shares.
"It would seem to me that it would be extremely unlikely that anyone would effect an estate freeze if there were no taxes to consider (either death duties in the nature of succession taxes or taxes on capital gains at death)."
As noted by Justice Groberman in Re Racz, an estate freeze freezes the assets in an estate and gives the benefit of future growth to others through shares and through a family trust.
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