knowledge topics
Estate Freezes
KNOWLEDGE EXPECTED OF: CFP® Professionals Only
- 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 how each of the factors may impact the suitability 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
- Evaluate how each of the factors may impact the suitability of an estate freeze.
Glossary of Verbs (mouse over to see definition)
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Define
To state exactly the meaning of
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Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
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Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
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Compare
To note the similarities and differences between two or more things
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Estimate
To determine an approximate value for
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Calculate
To find the value using mathematics
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Convert
To change from one form or purpose to another
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Evaluate
To reach a conclusion or make a judgement through careful study
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Interpret
To give the meaning of / to construe or understand / to translate orally
Read more about the Taxonomy used in the FP-BoK