4 Estate Planning Tips for During and After the Pandemic

For those who have implemented an estate freeze in the past, now is a good time to revisit your business value.  Has there been a meaningful decline in the value as compared to the freeze value? If the answer is yes, then you should consider whether it makes sense to “thaw” your existing freeze and refreeze at the lower valuation.  If you do nothing, you will miss the opportunity to reduce the freeze value and your ultimate deemed disposition tax on death. 

Example:

Three years ago, Mary implement an estate freeze of her business when the value was $5 million. Mary exchanged her common shares of the business for frozen preference shares with a fixed value of $5 million, and the new common shares were issued to a newly established family trust, the beneficiaries of which are her two adult children. Given the current circumstances, Mary’s business value has dropped to $3 million.  Mary should consider a thaw and refreeze of her business because of the drop in value.  This refreeze may be undertaken relatively simply by reorganizing the preference shares of business owned by Mary.  The refreeze would effectively have Mary exchanging her existing preference shares with a fixed value of $5 million to newly issued preference shares with a fixed value of $3 million.  By refreezing, Mary reduces the face value of her shares by $2 million, which may directly translate to a deferral of deemed disposition tax of about $540,000 if the value of the business increases to $5 million or more by the time Mary passes. The $2 million of future appreciation has effectively been transferred from Mary to the family trust (and ultimately her two children).

If you have been considering undertaking an estate freeze of your business, but have been putting if off for whatever reason, now is an ideal time to make it happen. As discussed above, given that business values have declined, implementing a freeze now will meet your estate planning objectives, while minimizing your estate taxes and preserving wealth for your family.

Take advantage of the current conditions with tax-saving measures to provide some financial security and future certainty for your family.

Perhaps you have never considered whether an estate freeze makes sense for you, because you are not ready to face those tough business succession questions and realities, or simply because dealing with your mortality is too difficult at this time.  One thing that this pandemic has made us realize is that our health and lives are vulnerable.  We all need to plan for the inevitable reality that is death. This is the perfect time to reflect and plan for the future, and with depressed valuations, “the ducks are in a row” and well positioned for an estate freeze.

A will is important because it is the document that dictates how your assets will be dealt with and distributed when you die. How do you want your wealth to be transferred? Your will is meant to dictate your exact wishes. Generally, a will for a HNWI is going to be a very detailed document that clearly spells out the executor(s) you have appointed to oversee your estate, how and when your assets will be distributed and to which beneficiaries when you die. It also dictates any bequests you want to make to certain individuals and charitable organizations. Without a will, you die intestate, which means that you left no instructions as to how your property is to be distributed.  In these circumstances, the relevant provincial statute on succession will govern how your assets get distributed to surviving family members. Not having a will with your wishes clearly defined may lead to complications for your surviving beneficiaries and potential disagreements. It is important that the creation and revision of your will ties into your overall estate planning. You have likely worked your entire life to build a meaningful legacy, so it is crucial to ensure that you have a proper will and POA to preserve your wealth for future beneficiaries.