An estate freeze locks in today’s value of your business in your hands and moves all future growth to your kids or a family trust. You exchange your common shares for fixed-value preferred shares, usually under section 86 of the Income Tax Act, which is tax-deferred. New common shares are issued to the next generation. When you die, you’re taxed only on the frozen value, not on decades of growth. It typically costs $5,000 to $25,000+ including the valuation.
On this page
- What Is an Estate Freeze? (One-Paragraph Answer)
- Who Should Consider an Estate Freeze
- How It Works: Section 86 vs Section 85 Freezes
- Estate Freeze With a Family Trust
- Worked Example: Tax Saved at Death
- Risks to Plan For: Valuation, Attribution, TOSI and Refreezes
- Steps, Timeline and Cost
- FAQ: Estate Freezes
- Start With a Business Valuation and Freeze Plan
What Is an Estate Freeze? (One-Paragraph Answer)
When you die, Canada treats you as if you sold everything you own at fair market value. If your company is worth $1 million today and $5 million when you die, your estate pays capital gains tax on the full growth. An estate freeze stops that clock. Your shares are converted into freeze shares (preferred shares with a fixed redemption value equal to today’s value), and new growth shares go to your children or a family trust. From that day on, the growth belongs to them.
Who Should Consider an Estate Freeze
Good candidates:
- Business owners whose company is growing and likely to keep growing
- Owners in their 50s or 60s planning succession to children
- Owners who want to multiply the lifetime capital gains exemption across family members for a future sale
- Holding company owners with growing investment portfolios or real estate
- Anyone who wants to cap and predict the tax bill on death
Probably not yet:
- The business is small or not growing
- You need the growth to fund your own retirement
- No one in the family is likely to take over or benefit
You keep control. Freeze shares are often voting shares, so you can still run the company and receive dividends.
How It Works: Section 86 vs Section 85 Freezes
| Â | Section 86 freeze (internal) | Section 85 freeze (holdco) |
| How | Exchange your common shares for preferred shares within the same company | Transfer your shares to a new holding company in exchange for preferred shares |
| Tax election form | None required. It’s automatic if conditions are met | Form T2057 must be filed |
| Best for | Single operating company | Owners who also want a holdco for creditor protection or investments |
| Complexity | Simpler | More moving parts |
Section 51 (a simple conversion of shares) is a third option used where the company’s existing share terms already allow it.
Key terms for freeze shares:
- Fixed redemption value equal to fair market value at the freeze date
- Price adjustment clause, so the value automatically adjusts if the CRA disagrees with the valuation
- Usually voting, non-participating, with a discretionary non-cumulative dividend
Estate Freeze With a Family Trust
Instead of issuing growth shares directly to your kids, many owners issue them to a family trust.
Why:
- You don’t have to decide today which child gets how much
- You keep control as trustee
- Kids under 18 can benefit without owning shares directly
- When the business sells, gains can be allocated to several beneficiaries, each using their own LCGE
Trade-off: a trust adds setup cost, a yearly T3 return, and the 21-year deemed disposition rule.
Worked Example: Tax Saved at Death
Hana owns 100% of a BC company worth $2 million today. It’s growing about 7% a year. She’s 55.
| Â | No freeze | With freeze |
| Value of company at age 85 (approx.) | $15.2 million | $15.2 million |
| Value taxed in Hana’s estate | $15.2 million | $2 million (frozen) |
| Capital gain (assuming ~$0 cost) | $15.2 million | $2 million |
| Approx. tax at death (BC top rate, 50% inclusion) | ~$4.07 million | ~$535,000 |
| Growth owned by children / trust | $0 | $13.2 million |
Rough figures for illustration only. They assume today’s rates, ignore the LCGE and treat growth as taxed later in the children’s hands.
The growth isn’t tax-free forever. It’s taxed when the children or trust eventually sell or die, but that’s a generation later and can use their own LCGEs.
Risks to Plan For: Valuation, Attribution, TOSI and Refreezes
| Risk | What can go wrong | How to manage it |
| Valuation | The CRA says the company was worth more, so the extra value was a taxable benefit to the kids | Get a proper independent valuation and include a price adjustment clause |
| Corporate attribution | Under section 74.4, you may have to report deemed interest income if a spouse or minor child benefits | Use a structure that qualifies as a small business corporation, or plan for it |
| TOSI | Dividends on growth shares to family members get taxed at the top rate | Plan dividends carefully. Use the freeze mainly for capital gains planning |
| Value drops | If the business falls in value, your freeze shares are worth more than the company | Do a refreeze at the lower value |
| Family issues | Divorce or disputes involving children who hold shares | Use a trust, a shareholder agreement and marriage agreements |
Steps, Timeline and Cost
Typical steps:
- Planning meeting with your accountant and lawyer (goals, family, sale plans)
- Independent business valuation
- Design the share structure (and the family trust, if used)
- Lawyer amends the articles and drafts resolutions and share exchange agreements
- File any required tax elections (T2057 for a section 85 freeze)
- Update the minute book, shareholder agreement and your will
Timeline: about 1 to 3 months.
| Cost item | Typical range |
| Accounting and tax planning | $2,000 to $8,000 |
| Legal (articles, agreements, resolutions) | $3,000 to $10,000 |
| Business valuation | $3,000 to $15,000+ |
| Family trust (if used) | $3,000 to $10,000 |
FAQ: Estate Freezes
Do I lose control of my company?
No. Your freeze shares can carry voting control, and you can remain a director.
Can I still get dividends after a freeze?
Yes, on your preferred shares, and you can redeem them over time to fund retirement.
Is an estate freeze taxable when it happens?
Not if it’s done properly under section 86 or section 85. It’s a tax-deferred reorganization.
Can I undo it if the business loses value?
You can do a refreeze, which resets the freeze value lower.
Can an estate freeze help my kids use the LCGE?
Yes. If they (or a trust for them) hold growth shares and the company sells, each can potentially claim their own $1.25 million exemption.
Do I need a will after a freeze?
Yes. Your freeze shares are still part of your estate, so update your will and consider dual wills to reduce probate where allowed.
Start With a Business Valuation and Freeze Plan
