Estate freeze

As a business grows in value, so does the tax that will eventually be triggered when its owner sells, dies, or otherwise disposes of the shares. An estate freeze is a way to stop that growth from continuing to build up in the founder’s hands, so it does not all land on one person’s estate at once.

How it generally works

• The owner exchanges their common shares for preferred shares fixed at today’s value
• New common shares, which will absorb all future growth, are issued to children or a family trust
• The owner can often keep control through voting rights attached to the preferred shares, even without owning the growth shares

Why owners consider it

A freeze can shift future tax liability onto the next generation of owners at a lower cost than waiting and transferring the business later at a much higher value. It is also a common step before bringing children into ownership gradually, ahead of a full succession. It requires careful valuation and paperwork to hold up if reviewed later.