Friday, October 19, 2012

Practical Considerations for the Family Trust in an Estate Freeze

Paper presented at Trusts: The Multi-Faceted Estate Planning Tool (Vancouver, BC)
Continuing Legal Education Society of British Columbia

This paper discusses the establishment of a discretionary family trust as part of an estate freeze. After describing what an estate freeze is, the paper focuses on family trusts and trust principles relevant to the estate freeze context.

The death of a surviving spouse triggers a deemed disposition of capital assets and the payment of capital gains taxes on any accrued but previously unrealized capital gains. Rather than having that potential capital gains tax grow over the years, some parents will freeze their assets at the current value so that future growth in value accrues for the benefit of the next generation. This ensures that this future growth is not taxed on the death of the surviving parent. This is often referred to as an “estate freeze” reorganization. A discretionary family trust can be used to hold the future growth so that the parents can control how future growth is allocated to the children.

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The above article provides general commentary of an educational nature. It does not constitute advice for any specific person or any specific set of circumstances. Because circumstances vary, readers should consult professional advisers in order to obtain advice that is applicable to their specific circumstances.