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Vancouver, BC (March 05,
2001): A carefully designed estate plan
is one that withstands the tests of time. The
first ingredient is a comprehensive Will that
carries out the wishes of the individual. However,
not all estate matters need to be dealt with upon
the death of the individual.
Fee-only investment counsel and
financial advisor Adrian Mastracci says,
"There is much one can do during one's lifetime
to accomplish some unique personal goals. One
consideration for many is an estate freeze."
Mastracci, president of Vancouver
based KCM Wealth Management comments, "An
estate freeze is a process where an individual
decides to place a limit on the growth for his
or her account of some or all of the assets currently
owned. The expected future growth on the selected
assets can then be passed to the benefit of other
family members, in many cases to a child or grandchild."
Mastracci suggests the following
considerations for an estate freeze:
- An individual who would consider an estate
freeze may own a wide range of assets. Typical
assets for consideration are a portfolio of
stocks and bonds, a family business, a family
farm, shares in a variety of private companies,
and a portfolio of real estate investments.
- While every case is judged on its own merits,
a popular method to carry out an estate freeze
is by using an appropriately designed share
structure of a private company. The general
concept is for an individual to transfer certain
assets at today's fair market value for particular
shares of equal value in the private company.
- The family members to whom the growth benefit
is conferred also become shareholders in this
corporation. Accordingly, the individual becomes
the owner of shares that do not give rise to
future gains, while the other family members
acquire shares whose future value may rise.
- There are a number of valid reasons to undertake
an estate freeze. Some of the important ones
include the desire to pass on a family business
or operating farm to another family member in
an orderly fashion, a deferral of income taxes
to a younger generation, a possible reduction
in probate fees, minimizing income taxes ultimately
payable, and perhaps a form of asset protection.
- When a qualifying farm or small business is
involved, the $500,000 capital gain exemption
should be reviewed to determine if it can be
utilized in part or in full. Further, the private
company structure may accommodate some income
splitting, especially when the beneficiaries
are age 18 or over.
- The appropriateness of an estate freeze depends
on the transferring individual's circumstances
and those of the other members who are expected
to benefit. An approach is to review all the
alternatives available to you before commencing
the process.
- An individual is well advised to view an estate
freeze as non-reversible. Therefore, considerable
thought should be given to the adequacy of the
asset base remaining in the individual's hands
before any transfers take place.
- Two important considerations are that the
transferring individual retain sufficient assets
to look after the financial needs for his or
her lifetime and, where applicable, to maintain
some form of control in the new structure.
Mastracci summarizes by saying,
"The contemplation of an estate freeze should
be an integral part of a well-crafted estate plan
that achieves specific long-term personal goals
unique to that individual. After all, estate planning
is about what is important to you."
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