Private companies should consider estate freeze in tax planning - Fiscal Agents Money Management Newsletter

Choosing Fin.Services

Insurance Products

RESP Savings

Taxes / Estate Matters

Subscription Services

Glossary of
Financial Terms

The Companion Advisor: Taxes & Estates
Private companies should consider estate freeze in tax planning

By PricewaterhouseCoopers (with files from CNW)
A Companion Advisor article

TORONTO, April 2009: 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 generation.

- 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 the parent.

- 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 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 www.pwc.com/ca/managinginadownturn.

PricewaterhouseCoopers provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 155,000 people in 153 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice. In Canada, PricewaterhouseCoopers LLP and its related entities have more than 5,200 partners and staff in offices across the country.

"PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity.

* * *