Estate Freezes

KNOWLEDGE EXPECTED OF: CFP® Professionals

Highest Knowledge Level: Understanding

Knowledge Levels and Associated Verbs


Awareness
The state of being aware that something exists / to have familiarity with a particular activity or subject
Understanding
To comprehend the general relationship of particulars / to have an expertise with how something works
Application
Ability to put information to use / to use knowledge for relevant, practical purposes
Evaluation
To judge or conclude by utilizing data / a systematic determination of something’s worth or significance
Define
To state exactly the meaning of
Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
Determine
To ascertain / to come to a decision, such as by investigation or reasoning
Compare
To note the similarities and differences between two or more things
Estimate
To determine an approximate value for
Calculate
To find the value using mathematics
Convert
To change from one form or purpose to another
Evaluate
To reach a conclusion or make a through careful study
Interpret
To give the meaning of / to construe or understand / to translate orally

Hold cursor over or click on each term to read its definition.


Additional Knowledge Expected of CFP Professionals
  • Define an estate freeze.
  • Define types of estate freezes.
    • Full
    • Partial
  • Explain the purpose of an estate freeze.
  • Identify when an individual may benefit from an estate freeze.
  • Explain methods used to implement an estate freeze, such as:
    • Section 86 exchange: Reorganization of common shares for preferred shares
    • Section 85 transfer: Common shares transferred to holding company in return for preferred shares
    • Asset freeze: Unincorporated assets transferred to a corporation in return for shares
    • Use of trusts
    • Stock dividend freeze
  • Explain objectives of an estate freeze, such as:
    • Fix capital gain and probate liabilities
    • Lock in a purchase price for the business
    • Gain commitment to the business by future owners
    • Efficient transfer of ownership (to family or key employees)
    • Transfer growth and risk to future owners
    • Provide retirement income to current owners
    • Facilitate income splitting
    • Avoid family / heir disputes
    • Enhance creditor protection of assets
  • Explain factors impacting establishment of an estate freeze, such as:
    • Existing owners’ life expectancy
    • Existing shareholders lifestyle and income needs
    • Impact of inflation on income needs of existing shareholders
    • Control of ownership of assets / corporation
    • Dynamic of personal relationships
    • Ability of next-generation shareholders to manage ownership of the corporation
    • Ability of next-generation shareholders to manage wealth of corporation
    • Ability of the corporation to fund redemptions as needed of existing shareholders
    • Number of next-generation shareholders that will be involved / affected
    • Costs of implementing estate freeze
    • Current tax implications arising from estate freeze
    • Future tax implications arising from estate freeze
    • Attribution rules
    • Capital gain realized
    • Availability of capital gains deduction
    • Method of implementing estate freeze
    • Potential for re-freeze
    • Instructions contained in a will
    • Existing legal agreements
    • Tax on Split Income (TOSI) rules