Succession planning involves setting into motion a series of events that will one day see a business survive a change of control. For the current business owner, it means getting fair compensation for the business and personal freedom, and for the business it means the security that it will continue to operate. Starting and building a business is an all-encompassing venture which absorbs time, money and emotion for the owner and their family. A successful succession plan would see some of those inputs returned to the founder.

Succession planning can come in many forms and methods, and each case is as unique as each company and family situation where the planning is undertaken. One of the most used tools in succession is the estate freeze.

Estate freezing is an effective method of minimizing the amount of tax you will pay upon your death. This is because the value of the asset will be frozen at the time of the estate freeze, resulting in future growth being taxed in the hands of the beneficiary or successor. Having a freeze on the growth of your estate helps us to plan strategies to deal with estate tax liability and ensure that there is sufficient compensation realized.

Since an estate freeze requires you to give up future income and growth on an asset, estate freezes are usually done when you are ready to start planning and are comfortable with the value of your estate. If an estate freeze is done too soon, you run the risk of running out of money.

Estate Freezing, The Easiest Way

The simplest way to do an estate freeze is to gift specific assets to your adult children or successors prior to death. This requires you to calculate how much you need to live on in retirement and then determine if you have assets in excess of that. The excess assets can then be gifted to your adult children and future income and growth of the asset will now be taxed in your successor's hands.

Estate Freezing, Without Losing Control

If you would like to retain control of the assets in your lifetime, a more formal estate freeze will need to be implemented. A formal estate freeze can be used on a variety of assets including, a portfolio of investments, family businesses or real estate holdings. This type of estate freeze involves either setting up a corporation (if the assets are held personally) or a corporate reorganization of shares (if the assets are currently held in a corporate entity).