What Is an Estate Freeze?

An estate freeze is a strategy often used in wealth planning to cap the taxable value of assets at current levels, preventing future growth from increasing estate taxes. By freezing the growth of those assets within the estate, future appreciation is passed to beneficiaries, which helps reduce the overall tax burden upon the estate owner's death.

Rather than allowing estate assets to grow, which would increase estate taxes, the freeze transfers the capital gains, and thus, the capital gains tax, to beneficiaries. This allows more wealth to be preserved across generations since capital gains taxes are lower than estate taxes.

How an Estate Freeze Works

The main o⛦bjective of an estate freeze is to transfer capital gains from the asset owner to their beneficiaries, reducing the size of the esꦺtate upon their death and thus, the amount of taxes paid by the estate.

Appreciation and inflation can radically increase an individual's 澳洲幸运5开奖号码历史查询:estate tax burden upon death. Any estate-reducing program is more effective if it includes techniques capable of 𝓡shifting appreciationꦜ and income to a decedent's intended beneficiaries.

An estate freeze strategy is often e🌱xecuted through a corporate structure. The estate owner exchanges common shares for preferred shares. Preferred shares pay fixed dividends and usually do not appreciate.

The company, in turn, issues new shares of 澳洲幸运5开奖号码历史查询:common stock to the beneficiaries at 澳洲幸运5开奖号码历史查询:nominal value, which do appreciate. Through this method, all capital appreciation has now been passed to the beneficiaries, al❀ong with all capital gains taxes.

High-net-worth individuals use estate freezes as part of a succession plan to pass wealth to future generations, as it reduces taxes, preserving that wealth.

Using Estate Freezes as Part of a Wealth Plan

Estate freezes work best when included as part of a holistic estate plan. While the freeze may limit the taxable growth of assets, planning around corpora🍨te ownership structures, tax filing🍸s, and beneficiary arrangements will ensure the long-term success of wealth transfer.

For example, freezes are often used alongside trusts to provide greate🎉r asset protection. If complicated family or business arrangements exist, then utilizing other tools, such as shareholder agreements and buy-sell provisions, may need to be used.

Having a team o🥂f estate lawyers, tax professionals, and financial advisors will help you create a smooth wealth plan, ensuring as much of your hard-earned money gets passed on to your heirs.

The Bottom Line

A♒n estate freeze is one of several strategies used by high-net-worth individuals to reduce the tax burden on their heirs. By exchanging assets with a high growth potential, estate owners can reduce their future tax obligations, thereby passing more wealth to their beneficiaries.