Tag: estate freeze
We have blogged over these past couple of weeks about the novel issues which have arisen with the drafting and execution of Wills during the COVID-19 pandemic. Although we remain hopeful that there will be guidance and/or legislative changes from the government soon regarding how to address issues such as the witnessing of Wills for individuals who are in quarantine or self-isolation, a recent article from Dale Barrett in Lawyers Daily notes that it may not all be doom and gloom surrounding estate planning during the COVID-19 pandemic, as the recent significant drop in the stock market could make it an ideal time for certain individuals to complete an “estate freeze”.
An estate freeze at its most basic accomplishes exactly what the name implies, insofar as it “freezes” the value of an individual’s assets at a particular date and time prior to their death, with any “future growth” on the assets being attributed to someone else (often the individual’s children). The use of an estate freeze is often done as a tax planning tool, with the underlying rationale being an attempt to reduce the potential taxes associated with the deemed disposition of their assets upon their death, which is accomplished by “freezing” the value of the assets at their current value such that the growth is not as great as it otherwise may have been (assuming the asset would continue to grow in the future). Although the structure that is required to accomplish this is somewhat complicated and will require the involvement of professionals, in a very basic overview it is typically accomplished by having the individual create a new company that will ultimately hold the assets being “frozen”, with two classes of shares being created the first which is retained by the individual implementing the freeze and fixed at the value of the assets on the day the of the freeze, with the second class of shares being attributed any “gain” in value of the assets after the freeze attributed to someone or something else other than the individual carrying out the freeze (often ultimately benefiting their children). The implementation and steps required is more complicated and nuanced than the description above suggests, and will almost certainty require the involvement of professionals to ensure that the individual does not go offside complex tax rules, but you get the basic idea.
Although the availability and potential use of an estate freeze is not for everyone, the recent drop in the stock market associated with COVID-19 could create a potential advantage and incentive for people considering an estate freeze to do so now as they could potentially “freeze” the value of their assets at a lower value than they otherwise may have been able to. If you are considering an estate freeze you may wish to speak with a professional now about whether it may be an opportune time to do so and to ensure that it is properly implemented.
Thank you for reading and stay safe and healthy.
The holiday season is upon us, and with it comes family gatherings, buying and wrapping gifts, and travel. Suffice to say, it can be a hectic and busy time. Nonetheless, with 2018 on the horizon, many of us take the time to reflect and set resolutions for the upcoming year. Despite this, so many Canadians do not have a Will.
Why not? Estate planning need not be trying, and the holiday season is a perfect time to start considering your estate plan.
With this in mind, I thought I would highlight an article from the Globe and Mail which does a great job of highlighting issues to get you thinking about your estate plan:
- Get started – make a detailed list of your assets, liabilities, and joint assets, and think about your family’s needs and lifestyle.
- Consider your options – do you want your bequests to be absolute, subject to the terms of a trust, or gifted during your lifetime?
- Appoint representatives – think about who you trust to administer your estate and ensure that they are up for the job.
- Special circumstances – are there any beneficiaries who have special circumstances such as those receiving ODSP, that would benefit from specific trusts?
- Taxation – meet with a professional to understand tax consequences and the vehicles available to limit the payment of taxes, including the use of joint ownership and estate freezes.
- Cottages – should your estate involve the cherished family cottage, think about whether you want it sold, or shared amongst family members. If the latter, think about preparing a co-ownership agreement.
Wishing all of our readers a happy New Year!
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The recent Ontario Superior Court of Justice decision in Ozerdinc Family Trust provides a helpful reminder as to the steps lawyers should take when advising trustees of a Trust with respect to the twenty one year rule against perpetuities.
Under the provisions of the Income Tax Act, capital property is normally taxed upon its “disposition”. In the case of a Trust, according to section 104(4) of the Income Tax Act, there is a deemed disposition every twenty one years after the original settlement of the Trust as long as the Trust holds property that is subject to the rule.
Such property includes: shares of a qualified small business corporation, qualified farm property, and qualified fishing property; marketable securities (including mutual funds and portfolio investments); real and depreciable property; personal-use and listed-personal properties; Canadian and foreign resource properties; and, land held as inventory. At the same time, certain types of capital property are exempt or excluded from the operation of the rule depending on such factors as residency or the nature of the trust.
In order to avoid and/or mitigate any taxes owing as a result of the deemed disposition, there are numerous planning options available to trustees including changing the residency of the trust, or entering into a corporate freeze. Trustees may also simply decide to do nothing.
Therefore, at a minimum, trustees must consider the date of the impending deemed disposition, as well as available tax planning measures to avoid/mitigate any taxes resulting from the deemed disposition. An obligation to advise trustees of these issues often falls on the professional who assisted with the settling of a Trust.
In Ozerdinc Family Trust, Justice Marc R. Labrosse found that the defendant law firm was negligent in failing to advise the trustees of the impending deemed disposition date, as well as the available tax planning measures available to them. Although the facts in this case are nothing novel, it nonetheless acts as a helpful reminder as to the steps lawyers should take when advising trustees of a Trust.
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