ESTATE FREEZE
Back to GlossaryDefinition
A series of steps that are taken to set or “freeze” the value of at the current fair market value (FMV) of the shares so that other family members can buy new future growth shares at a nominal amount
Summary
An estate freeze is a strategic tax planning technique used by business owners and wealthy individuals to transfer future growth of their assets to the next generation while maintaining control. The current owner converts their growth shares into fixed-value preferred shares (freezing their value at today's market price), while family members purchase new common shares for a minimal cost. This allows all future appreciation of the business to benefit the younger generation, reducing the estate's ultimate tax burden while the original owner retains voting control and receives steady income through preferred dividends.
Usage Context
Essential for understanding advanced tax planning strategies, estate planning, corporate reorganizations, and intergenerational wealth transfer techniques. Critical when studying business succession planning and tax-efficient wealth transfer methods.
Common Confusions
- Thinking the original owner loses all control of the business
- Believing the freeze eliminates all taxes rather than just deferring/reducing them
- Confusing estate freeze with estate splitting or income splitting
- Assuming the technique only works for large corporations
- Misunderstanding that the 'freeze' refers to stopping future growth rather than current value
