Estate Freeze

An estate freeze is a tax planning strategy that caps the value of certain assets in your hands at today’s price and redirects any future growth to the next generation (or a family trust). The goal is to limit the tax bill that will be triggered by a deemed disposition on death, while allowing future appreciation to accumulate in someone else’s hands at a lower or deferred tax cost.

How it works

The most common version involves a private corporation. The business owner exchanges their common shares (which are growing in value) for preferred shares with a fixed value equal to the company’s current worth. New common shares are then issued to the next generation, often children, either directly or through a family trust.

From that point forward, the frozen preferred shares don’t grow in value. All future growth flows to the new common shares held by the next generation. When the original owner eventually passes away, the deemed disposition applies only to the value that was locked in at the time of the freeze, not the total value of the business at death.

Who uses it

Estate freezes are most common among owners of private businesses, farms, and holding companies. They’re a tool for families where significant wealth is held in a corporation and the goal is to transfer that wealth to the next generation in a tax-efficient way.

This isn’t a do-it-yourself strategy. It involves corporate reorganizations, share exchanges, and often the creation of a family trust. Legal and tax professionals are essential to get the structure right.

Why it matters

Without planning, a business owner could face a massive capital gains tax bill at death on decades of growth in their company’s value. An estate freeze sets a ceiling on that liability. It can also help reduce probate fees in some provinces, since the frozen shares have a known, fixed value.

Example

Say a business owner’s company is currently worth $2 million and they expect it to grow to $8 million by the time they pass away. Without a freeze, the deemed disposition at death would apply to the full $8 million of value. With an estate freeze done today, the owner locks in their shares at $2 million and the future $6 million of growth flows to the next generation’s shares. The tax bill at death applies to $2 million instead of $8 million, potentially saving hundreds of thousands of dollars.

The freeze doesn’t eliminate taxes entirely. It shifts the timing and the person who ultimately pays. But for families with a growing business or investment portfolio inside a corporation, it can save a significant amount in taxes across generations. For more on how capital gains are taxed, see our capital gains tax guide.