Estate freezes: saving your heirs from a big tax bill

Louie works at an auto plant where he's worked as a tool maker for nearly 30 years. Today, not only thinking about drafting and moulding, his mind is also occupied by estate freezes. Because Louie also owns and manages two multi-unit rental properties, it’s quite the nest egg. In fact, the properties he purchased for $450,000 twenty years ago are now worth $3 million. And they are poised to appreciate even more in the coming years, which is why he’s thinking of estate planning.

Louie recently learned from his Co-operators Financial Advisor that his heirs are immediately responsible for capital gains taxes upon his passing. This means that they may be forced to sell the property management business if they don’t have enough liquid cash to cover that tax burden. Plus, his daughters might not get full value because the unpredictable real estate market could be depressed at the time they inherit the business.

An estate freeze, under the Income Tax Act, will allow Louie to freeze his business assets, which are currently valued at $3 million. He can then establish a holding company that includes his heirs as shareholders. If in 10 years the business is worth $6 million, the capital gains of the extra $3 million would be deferred to his heirs, meaning that their taxes would not have to be paid until they sold or transferred the business.

Louie also made sure that he has a good life insurance policy. That way, his policy will cover the capital gains on the three million dollar value of his frozen assets. Now, he can relax knowing that the business he’s built for his family will continue to help them when he’s gone.

If you’d like to learn more details about estate freezes, call or visit your Financial Advisor. They have access to many financial experts who are dedicated to wealth and estate management.