T HE E STATE F REEZE An Effective Estate Planning Tool This presentation will probably involve audience discussion, which will create action items. Use PowerPoint to keep track of these action items during your presentation In Slide Show, click on the right mouse button Select “Meeting Minder” Select the “Action Items” tab Type in action items as they come up Click OK to dismiss this box This will automatically create an Action Item slide at the end of your presentation with your points entered. Insurance Concepts

Objective To defer the income taxes on future share appreciation which would otherwise be payable on the death of the current business owners/shareholders. Your children may be involved in running the business. Even if they are not, you may want them to own it after your death.

T HE E STATE F REEZE Limits taxable gain Reduces tax liability Allows new corporate growth to flow to family members

The Problem CCRA(Revenue Canada) stipulates that we must pay tax on gains. Gains happen as a result of something being worth more today, than when it was purchased. Taxes will have to be paid on these gains when either of these two events occur: 1. When the assets are actually disposed of i.e. sold. 2. When there is a deemed disposition for instance, at death, assets are considered to be ‘disposed’ of (unless they pass on to a spouse)

The Solution The Estate Freeze is a tax planning tool used to limit the amount of gain an individual incurs. By limiting the gain, we limit the tax owing when the property is ultimately “disposed” of. An estate freeze is a re-organization of a company’s capital. The shareholders/business owners go through a process of exchanging their common shares for non-growth preferred shares.

Depending how you structure the freeze, you can trigger part, all or none of the accrued capital gain on your shares to date, capping the non-growth preferred shares at the company’s current value. This effectively “freezes” the tax liability of the original shares at today’s value.

Reducing Taxes The corporation would then issue new common shares to the family members (usually spouse/children). This allows any future increase in the company’s value to flow directly to them.

After the “freeze”, the Preferred Shareholders (business owners) can set up a program where they begin redeeming their shares out of the corporate income. Depending on how the freeze is set up, the income can be taxed to the recipient as a deemed Dividend.

This plan has other benefits as well. It can be structured so that the business owners retain control of the holding company for as long as they are alive and competent. It gives them the ability to control how much taxable income they earn each year and therefore the ability to avoid the OAP clawback.

Need an Estate Planning Checkup?  If you died today, would you be comfortable knowing who will be running your business, how your spouse and other family members will be remunerated, who will pay the creditors?  Do you know if your shares will be sold?  Will the other shareholders buy them and at what price?  Where will they get the cash?

The list could go on and on. In any event, due to constantly changing tax and legal rules, it goes without saying that you should make it a priority to have your estate plan reviewed on a regular basis.

Whether an estate freeze is useful to you will depend very much on your business, financial position, future plans and your goals. This transaction is extremely complex and the description in this presentation has been simplified. In addition, it may not be appropriate for everyone..

T HE E STATE F REEZE For more information on this concept and others, please call or us. Thank You