Estate Freeze

Peter R Welsh Law Estate FreezeWhat is an Estate Freeze? In short, it is a technique to limit and defer capital gains tax on a shareholder. As we know, upon the sale of shares of a corporation giving rise to a capital gain ( which is the difference between the acquisition cost or the “Adjusted Cost Base” and the selling price), one half of the difference is added to the other income of the seller in the year of sale (there are some income tax provisions which soften the capital gains tax exposure, but for the purposes of this brief introduction, we are ignoring those alternatives).

Upon the death of a shareholder, there is a deemed disposition (or sale) of shares and the capital gains is then calculated and included in the terminal year income tax return of the deceased shareholder. It is advantageous to a shareholder to defer or delay the calculation and payment of that capital gains tax or, better still, to limit its potential growth.

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