If your investments or other assets in time will exceed the capital gains exemption limit, you should consider an estate freeze.

Your lifetime capital gains exemption is $100,000, except for the sale of shares in small, privately held corporations and farms, where it is $500,000. Any net capital gains in excess of these amounts are subject to income tax, either on the disposition of the assets, or on death of the owner.

If you plan to ultimately bequeath such assets to your heirs, you could establish an estate freeze. This virtually freezes the present value of estate assets, so any future increase in value is attributable to your beneficiaries, and taxable in their hands. If, for example, you have three heirs, the total capital gains exemption applicable to your assets would amount to $400,000; or if shares in a family business are involved; it could amount to $2 million.

Suppose, for example, you own an investment portfolio with a current market value of $100,000 more than it cost you to acquire (including interest costs on any loans used to purchase your investments).

If you die tomorrow, CCRA would - unless you had made appropriate arrangements - consider that these investments had been disposed of at today's prices, and subject to the capital gains tax. But there wouldn't be any tax, since you are within the $100,000 exemption.

But let's be more cheerful and assume you live for another 10 years. During this period the value of your investment portfolio increases by another $300,000. If no other assets were involved, your estate would have to pay capital gains tax based on that $300,000.

If you used an estate freeze, each of your three heirs could apply their exemptions against this increased value so no capital gains tax would be applicable.

An estate freeze normally involves your children or grandchildren. A spouse is not usually named as a beneficiary in an estate freeze, since all assets can be rolled over tax-free to a spouse.

A trust is a common way to set up an estate freeze. Assets are transferred to the trust and any future gains in the value of these assets are taxable in the hands of the beneficiaries of the trust.

If you have a family business, you can establish an estate freeze by forming a holding company owned by your heirs. The holding company would then issue preferred shares or other securities to you in exchange for the shares of the operating company.

This way, you retain the present value and control of the business, while any future capital gains are attributable to your heirs.

There are several ways to establish an estate freeze, but it's never a do-it-yourself undertaking. It should be part of your overall long-term tax and estate planning strategy. If you would like to explore how an estate freeze may apply to your situation we're here to answer your questions. Feel free to call (306) 757-2121 or use the convenient request for more information form available on our website.

Yours truly,

Tactical Asset Management, Inc.
phone: (306) 757-2121
fax: (306) 347-3655
e-mail: inquiry@tacticalassetmgmt.com
website: www.tacticalassetmgmt.com