As a business owner, your estate plan should address both your personal and business assets. However, estate planning for business owners is more complicated as it needs to address potential tax issues. If you want to maximize the wealth of your estate by minimizing its tax burden, an estate freeze is a useful tool.
CAPITAL GAINS TAX
Any assets not inherited by the surviving spouse or common-law partner are a “deemed disposition” immediately upon death. This is primarily treated as a sale at fair market value, which is subject to capital gains tax. If the value of your business has grown over the years, this could leave your family and estate with a potentially significant financial burden.
Your business is part of your estate, and its value as an asset can be significantly depleted by capital gains tax!
An estate freeze, where the value of your business is frozen as of a certain date, is one of the most useful ways to alleviate this tax burden in the event of your death.
There are many ways to approach an estate freeze, but the most common is as follows:
You may be concerned that your voting rights within your company will change once you exchange your common shares for preferred shares. However, voting shares can be issued in conjunction with this exchange so that you can retain control of the company.
When you choose the right type of freeze, and it is structured properly, your business can be far better positioned to washstand the settling of your estate upon your death. If you are interested in considering strategies for maximizing the wealth of your estate upon your death, give our office a call. We are here to help!
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