Duhaime's Law Dictionary


Estate Freeze Definition:

A deferment of property transfer at the time of death to avoid, reduce or transfer tax liability.

Related Terms: Estate, Family Trust

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)."

In Black, the publisher's annotation were as follows:

"The concept of estate freeze is rather intimidating to many family lawyers.... The form of an estate freeze is that the estate planner ... receives consideration equal to the fair market value of the assets transferred by him and the common shares received by the recipient are worth the same amount as the consideration they provided. It is in effect a trade where each receives something equal in value to what he turned over."

As noted by Justice Groberman in Re Racz, then a judge of the BCSC (now of the BCCA), in a case in which the judge erred as to disposition upon the facts, but not as to the suggestion of law and financial purpose regarding an estate freeze:

"(The adult) declared incapable of managing her person and her affairs ... entered into an estate freeze, freezing the assets in her estate and giving the benefit of future growth to (two beneficiareires) ... and their families through shares and through a family trust."

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