TORONTO, April 29 /CNW/ - With financial markets at record low levels and
the economy at a virtual standstill, the value of investment portfolios and
operating businesses have dropped significantly. As a result, according to
PricewaterhouseCoopers (PwC), now is the ideal time for private companies to
consider an estate freeze.
An estate freeze is a tax planning technique used to defer taxes by
transferring growing wealth in private company shares from the current
generation to a future generation. In order to do that, the parent caps or
freezes the value of their interest in the company at the current value and
allows all future growth to accrue for the benefit of future generations.
"Even if you take the economic crisis out of the equation, freezing in
and of itself is a great idea, particularly if your wealth is already such
that you will live comfortably for the rest of your life and you plan to give
anything else you might accumulate to the next generation on your death," says
Angela Ross, associate partner in PwC's High Net Worth Tax Services practice.
"Planned properly, the taxes on that growth will only be triggered if and when
your children die or sell the business."
To help ensure private company owners make the most of this tax planning
technique, Ross offers the following tips on estate planning.
- Make an estate freeze part of your succession plan. The growing
wealth captured in an estate freeze can be put into a trust where the
structure does not have to be wound down for 21 years. As a result,
private company owners have all that time to work out exactly what
they want to do before the wealth has to be transferred to the next
- Consider a flexible freeze. A traditional freeze involves a permanent
transfer of the future increases in value of a company to the
beneficiaries of the freeze. A flexible freeze, on the other hand,
allows the parent to include themselves as a beneficiary of the
freeze through a discretionary trust. If there is a change in the
succession plans, or the accumulated value at the date of the freeze
turns out to be insufficient, the trustees of the trust can partially
or fully reverse the freeze by transferring assets in the trust to
- Proper planning is key. Before considering an estate freeze, learn
about the technical pitfalls that could accompany the freeze,
including corporate attribution rules.
The full article can be found in the "Let's Talk About" section at
http://www.pwc.com/ca/pcs. This series of articles from PwC's Private Company
Services group helps business owners think about topical issues and
opportunities that can affect the performance of their business.
For more information on managing in a downturn, visit
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