Estate freeze

An estate freeze is a corporate restructuring that locks in your business’s current value for you, while directing its future growth toward the next generation (your children or a family trust). The goal: to cap the tax liability upon your death and prepare for the transfer of the business.

At a glance

Locks in the current value of your business for you (through so-called preferred shares, whose value remains fixed)
Future growth is passed on to the next generation (children, a trust, or key employees) through new shares
Caps the tax due upon the founder’s death
This is done without immediate taxation thanks to the “rollovers” provided for by law (transfers that are not immediately taxed)
Often combined with a family trust and the LCGE to maximize savings within the family

Why it matters

Upon death, the tax authorities treat it as if you had sold all your shares at their full value. Imagine a business that started from scratch and is now worth $3 million after 30 years: the tax bill can be enormous (half of the gain is taxable, amounting to nearly $800,000 in taxes at the highest marginal rate), and your heirs may sometimes have to sell the business to pay it. The freeze locks this tax bill at today’s level and allows future growth to accrue to the next generation. It’s a key tool for transferring family businesses in Quebec, often combined with a family trust and at the LCGE (the tax exemption that shields a capital gain from taxation), and technically structured using rollovers such as the one in the Article 85. The process is governed by the CRA’s reorganization rules (see the Income Tax Forms). The right time to think about this is before the value skyrockets, not after. We’re here to support you: Bankeo will connect you, for free, with a vetted accountant or CPA (Chartered Professional Accountant) who specializes in business transfers.

Frequently asked questions

What exactly is an estate freeze?

It’s a restructuring that locks in the current value of your business for you, while its future growth is directed toward the next generation. In practical terms, your share stops appreciating in value (so the tax liability upon your death is capped), and any future appreciation benefits your children or a family trust. Ideally, you freeze the value when it’s expected to rise significantly: the sooner you freeze it, the more future growth is shielded from your estate tax.

Does a freeze mean I lose control of my business?

No, not necessarily. The freeze is very flexible: the portion you retain can retain voting rights, be sold off at your own pace to fund your retirement, and you can be one of the people managing the trust that holds the new shares. You’re freezing the value, not your authority.

Who should you consult about a freeze?

It’s a team effort: the accountant handles the tax aspects and the valuation of the business, while the lawyer or notary handles the reorganization and the trust. The structure must follow specific rules to avoid any immediate tax liability. We’re here to support you: Bankeo will connect you, for free, with a vetted accountant or CPA who specializes in business transfers and estate freezes.