Under the Income Tax Act, on the date of your death you are considered  to have sold or disposed of all of your property.  This is a deemed disposition of all your property on death for purposes of income tax.  Your estate must recognize any gains made on property or investments and pay taxes subject to any exemptions available.   Estate planning permits you to arrange your estate to minimize estate taxes on death.  An estate freeze can defer the taxes payable to a later date by limiting the taxable capital gain that has to be realized on death.  If the taxes are deferred, then the amount remaining for your family can be increased resulting.


In very general terms, an estate freeze is an estate planning technique to limit the growth of capital property held by you during your lifetime; any future growth  in the capital property is transferred to you heirs as a result of  the estate freeze. For example, if your business is incorporated, then the shares you own  in your company will increase in value.  On death, for purposes of income tax, you are deemed to have sold the shares such that your estate must pay taxes on the capital gain.  The problem is that your estate is required to pay taxes on unrealized gains.   In order to meet the tax liability, the estate may be forced to sell the business in a bad market.  

To protect your estate, you can use an estate freeze.   Under an estate freeze, in the above example, 

  1. you would exchange your common shares for shares of equal value but the new shares would not grow.

  2. your family members would be given preferred shares and all the future growth would be attached to the preferred shares.

From the time of the estate freeze, any increase in value in the capital property accrues to property held by the heirs.  The property held by the original owner, or the person who puts the estate freeze in place, does not grow in value.  For many individuals, an estate freeze can be very effective especially if your company will continue to grow in value. 


The main value of an estate freeze is the tax deferral. The longer that payment of the taxes can be deferred, the higher the value. The deferral period would be from the time your heirs acquire the new capital property until they sell the assets.  By deferring payment of taxes, the assets available to you during the deferral period are increased; you have more cash available to use in your business for example.  

If your business is incorporated, then the  estate freeze may involve you giving up voting control of the business. The voting shares of the company may be  given to the children. Consider the implications of this situation. The dynamics of a modern family are very complex. Major changes, such as would result from an estate freeze under which control of the business is given to the children, can produce quite unexpected and dramatic changes. You must consider the dynamics of your own family and assess the impact of an estate freeze.

It can be extremely difficult to undo an estate freeze once it is implemented. The danger arises if you carry out the freeze to early. Over the years, your cost of living will increase. You may encounter unexpected expenses such as for medical treatment. The estate freeze may have limited your income to an extent that it will not be sufficient to meet your needs.  These types of concerns can be addressed in a properly prepared estate plan that uses an estate freeze as part of the overall plan to transfer the property to the heirs in the most tax efficient manner.


It is difficult to develop an understanding for these factors in the abstract. If you are seriously interested in minimizing taxes, then the best approach is to develop a preliminary plan as a first step. Next, the potential tax savings must be estimated based on reasonable assumptions that reflect your actual situation and expectations.  The effect of the estate plan on the family must be discussed and carefully considered with proper legal, accounting and financial planning advise.   This will give you some indication of whether or not an estate freeze has value to you. If in the end you decide that there is significant value to you, the plan can be implemented. Throughout the process you will have to work closely with your accountant and lawyer. More importantly, you will have to involve your children in the planning process; they must have a clear understanding of what you are considering and be on side.


An estate freeze can help you minimize the taxes arising from your death. It should  be part of the process to carry out a succession plan under which the children will eventually take over the business and be ready to run it when you want to retire. Even if in the end you decide not to do the estate freeze, going through the process may be of value for this purpose alone.

If you have any questions on the issues discussed above, or on estate planning in general, please contact Sucha S. Ollek at: