Have you ever had a business owner client express concern about passing their company to the next generation? Or worry about the massive tax bill their estate might face? If you're not talking to your business owner clients about estate freezes, you're missing a golden opportunity to add tremendous value to their financial future.
I recently worked with a client who built a successful manufacturing business worth $8 million. Like many business owners, he was shocked to learn about the potential tax liability his estate would face. What really caught his attention was when I explained how an estate freeze could lock in his tax liability today while passing future growth to his children.
An estate freeze is typically done on a tax-deferred rollover basis, so no tax is triggered when the transaction is implemented. Let's cut to the chase - what makes estate freezes such a powerful planning tool? At its core, an estate freeze allows business owners to:
- Lock in their capital gains tax liability at today's values
- An opportunity to crystallize the lifetime capital gains exemption
- An opportunity to multiply the capital gains exemption amongst family members
- Pass future growth to the next generation
- Maintain control and flexibility of their company, (via voting rights and family trusts)
- Create incredible planning opportunities with life insurance
- Enable income splitting with family members (within the constraints of TOSI rules)
- Provide retirement income through share redemption
Here's where it gets interesting. By freezing the value of shares at current levels, we create certainty around the tax liability. This is huge for insurance planning—we can now determine exactly how much coverage is needed rather than chasing a moving target. Corporate-owned insurance can also create significant tax advantages through the Capital Dividend Account. Plus, the freeze shares can be structured with voting rights that let your client maintain control even while transitioning ownership.
But timing is everything. I've seen too many business owners wait until they're ready to retire before considering an estate freeze. By then, they've missed years of potential tax deferral and growth transfer to the next generation. The sweet spot is often when owners are in their 50s or early 60s - established enough to have built significant value but young enough to benefit from long-term planning.
Think about your business owner clients. Are they aware that capital gains taxes could force their heirs to sell business assets just to pay the tax bill? Have you discussed how an estate freeze could help them maintain control while significantly reducing their family's future tax burden?
Want to really demonstrate value to your business owner clients? Ask them these questions:
*Do you know what would happen to your business if you died tomorrow?*
*Have you started thinking about succession planning for your business?*
*Are you concerned about the eventual tax impact when transferring your business/assets to your children?*
*Have you considered how your family would pay the tax bill on your shares?*
*Are you interested in ways to transfer your business and its future growth and tax liability to your children while maintaining control?*
*How important is it to you that your business/investment portfolio remains intact for your children?*
*Are you aware of how an estate freeze could help reduce your estate's future tax liability?*
*Would you like to lock in today's value of your business/investments for tax purposes?*
*Are you interested in learning about strategies that could help reduce your estate's tax burden?*
The beauty of estate freezes is their flexibility. They can be structured in different ways to achieve various objectives:
- Section 86 reorganization for straightforward freezes
- Section 85 rollover when involving a holding company
- Trust freezes for younger children or enhanced flexibility
- Section 51 for partial freezes for owners who want some continued growth exposure
Ready to dive deeper into estate freeze planning? Start by identifying business owner clients with estates over $2 million. Review their succession plans and tax exposure. Consider how an estate freeze might fit into their overall planning. Your clients will thank you for helping protect their legacy.
Don't let your business owner clients miss out on this powerful planning tool. The time to discuss estate freezes is now, before values climb even higher. Your clients need your guidance to navigate these waters successfully. If you want to learn more about implementing estate freezes, reach out to me and I can coordinate a discussion with our tax specialists and your client's professional team. Together we can help you identify opportunities and structure solutions that work for your clients.
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