Estate Freeze

How a freeze works

Picture the owner of a private company worth $2,000,000 today and likely worth far more in twenty years. In a freeze, the owner exchanges their common shares for preferred shares with a fixed redemption value equal to today's $2,000,000. The exchange is normally done on a tax-deferred basis under the Income Tax Act's rollover provisions (typically section 86, sometimes section 85), so no tax is triggered by the freeze itself.

The company then issues brand-new common shares for a nominal amount, often to the owner's children or, more commonly, to a family trust with the children as beneficiaries. Since the preferred shares soak up all of today's value, the new common shares start out worth almost nothing. But every dollar of growth from that day forward belongs to them.

What a freeze accomplishes

The owner's eventual capital gains tax bill is now capped at today's value. At death, the deemed disposition applies to preferred shares frozen at $2,000,000, no matter how large the company has grown; the growth is taxed only in the next generation's hands, decades later, when they sell or die. That is a full generation of tax deferral on the growth.

Freezes also serve succession: they are the standard machinery for gradually handing a family business to children who work in it. Where the shares qualify, a freeze structured through a trust may also allow more than one family member to claim the lifetime capital gains exemption on a future sale, which shelters over $1.25 million of gain per person (as of July 2026), though the qualification rules and the tax on split income (TOSI) regime make this a matter for professional advice, not a do-it-yourself multiplication. Finally, a fixed value at death makes life insurance and probate planning far more precise, since the size of the future estate is no longer a moving target.

Variations on the theme

Freezes come in several flavours:

• Partial freeze. The owner freezes only part of their equity and keeps some new common shares, sharing future growth with the next generation instead of giving it all away.
• Refreeze. If the company's value drops after a freeze, the preferred shares can be exchanged again at the new lower value, resetting the cap downward. Downturns are, perversely, good freezing weather.
• Wasting freeze. The owner redeems preferred shares year by year during retirement, converting the frozen value into retirement income and shrinking the balance that will be taxed at death.

Cautions before you freeze

An estate freeze is advanced planning. It needs a defensible business valuation (usually with price adjustment clauses in case the CRA disagrees), corporate law work, and tax advice; this article is a map, not a route. The attribution rules and the TOSI regime sharply limit how much income the structure can shift to family members, so a freeze is a deferral and succession tool much more than an income-splitting one.

The subtler risk is freezing too early. The cap works in both directions: value you freeze away is value you no longer own. An owner who freezes at 45 and lives to 90 may watch decades of growth accrue to others while their own retirement depends on redeeming a fixed pool of preferred shares that inflation quietly erodes. Most advisors keep the owner in control through voting shares and size the frozen value against a real retirement projection first.