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Carrying Out Final Wishes

What is an estate freeze and how do you manage it?

Some estate administrators in British Columbia might have to deal with an estate freeze. The term refers to the transfer of business assets while the business owner is still alive to the intended heirs for the purposes of business continuity. At the same time, the individual is given valued shares of the business locked-in at today's worth, which has favorable tax implications.

Upon the decedent's death, those shares are then subject to be sold at their fair market value, unless they were redeemed in the intervening years between the freeze and his or her demise.

As with most aspects of estate planning, there are pros and cons with estate freezes. Namely, the individual must have an heir waiting in the wings willing and able to take on the mantle of responsibility of managing the business.

It can also be challenging to determine the FMV of a business, and that value is subject to challenges by the Canada Revenue Agency. This is why it is vital to have an experienced estate administration lawyer involved at all phases of the process, as both the business owner during his or her lifetime and the estate administrator after the death of the decedent will want to make sure that the FMV is accurate.

Often the estate administrator can clear his or her responsibility by retaining the services of an independently operated third-party Chartered Business Valuator to create a valuation report. This would be considered to be a "reasonable attempt" to estimate the FMV of a business or its shares. When in doubt, consult the lawyer involved with the administration of the decedent's estate.

Source: The Blunt Bean Counter, "Estate Freeze – A Tax Solution for the Succession of a Small Business," Mark Goodfield, accessed June 30, 2016

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