Estate Freeze – Timing is everything

The Covid-19 pandemic is causing most Canadians to be in some form of self-isolation. Despite the effort of the government in protecting our health and safety or introducing relief measures to perhaps minimize its effect on the overall economy, it is only natural for us to fear the unknowns. How long will this last? When will things go back to normal? We don’t know the answer and the worst part is that we cannot control any of it.

Whether you are a business owner worried about the well-being of your employees, a person close to retirement worried about a sharp decline in their investment savings or even a parent of teenaged children who had enough of watching them at home all day, this certainly is an inopportune time for all of us. While we have limited control over many things, there are tax planning strategies that can provide you with firm control over your financial assets. 


And the best time to do it may be “now”. Here is why.

Every Canadian is subject to capital gains tax upon death. This “death tax” is calculated based on fair market value of all personally-held assets. It is imposed on your investment portfolio, real estates, and even your shares in private corporations. Hence, if you personally hold assets with large accrued gains, your death tax will be significant.

An estate freeze is a tax planning technique to cap the death tax. By freezing the value of your assets, you are effectively putting the ceiling on your death tax based on what they are worth today. You then give the future growth to your children, thereby deferring a large portion of your death tax to the next generation. In most cases, you set up a family trust so that you are not forced to give anything immediately to your children. A family trust allows you to make this decision over a 21-year period.

Put simply, you cap your death tax liability based on today’s value and push the tax on the future growth to your children without having to give up any control for the 21-year period.

For example, let’s assume your business is worth $2 million today. If something were to happen to you today, your death tax is estimated to be $540,000 (based on top rate in Ontario). If your business, however, is expected to grow significantly (say could be worth $10 million in the future), then your death tax will increase to $2.7 million. By freezing the value at today’s value of $2 million, you are able to save $2.16 million in death tax. For the $8 million of growth, you have 21 years to decide how this wealth is distributed amongst your children.

When the economy is in its downturn, the value of your assets may decline. As a result, it could provide opportunities to freeze your assets and cap your death tax at a relatively lower amount. For those who have already frozen their assets, this may present a good opportunity to refreeze at a lower amount and to restart their 21-year clock.

The process of estate planning involves a comprehensive understanding of your purpose and financial goals. A sound tax planning may also provide other benefits such as income splitting, multiplication of lifetime capital gains exemptions, and large savings on probate tax. It also forces you to review and update your Wills to ensure they are aligned with your intentions and often times we review your life insurance policies to ensure your estate has adequate resources to fund the death tax.

This pandemic may present excellent opportunities for some which allow them to gain full control over their financial plan. Please contact our team at Fazzari + Partners and we will assist you in setting up the estate plan that meets your objectives.

Get in touch by email: or phone: 905.738.5758