Estate Freeze — Estate Freeze
Last updated April 24, 2026 · By Evermore Private Wealth · Tax Strategy
Estate Freeze — Estate Freeze. An estate freeze is a Canadian tax planning strategy in which the current owner of an asset — usually a private corporation — exchanges their growth shares for fixed-value preferred shares, while issuing new common shares to the next generation (or a family trust). The current owner's tax liability at death is 'frozen' at today's value, while all future growth accrues to the next generation, deferring or reducing capital gains tax on succession.
Source: Canada Income Tax Act
Source: Federal Budget 2024 / Income Tax Act
Source: CRA
How an estate freeze works
The mechanics typically use a Section 86 share reorganization: the founder exchanges their existing common shares for redeemable, retractable preferred shares with a fixed value equal to the company's fair market value on the freeze date. The corporation then issues new common shares — usually at nominal value — to a family trust or directly to the next generation. From that point forward, all corporate growth flows to the new common shares.
When an estate freeze makes sense
Three classic triggers: (1) a successful private business with material expected growth; (2) the founder is comfortable capping their personal upside in the company in exchange for tax certainty; (3) the next generation (or trustees, in a discretionary trust structure) are identified and engaged. If any of those three is missing, the freeze should be deferred. A premature freeze can lock in a tax bill that becomes problematic if the company's value declines.
What this means for HNW Canadian families
The 2024 federal budget's increase to the capital gains inclusion rate (above the $250,000 personal threshold) made estate freezes materially more valuable for Canadian business owners — because the tax cost of not freezing went up. We model estate freezes against three scenarios for every business-owner client: do nothing; freeze now; freeze in five years. The 'right' answer depends on growth assumptions, the owner's age, and whether the LCGE will be used at sale or held in reserve. This is one decision where the difference between optimal and suboptimal is frequently $500k–$2M of family tax.
Worked example — Freeze on a $5M operating company
A founder owns 100% of a $5M operating company that is expected to grow to $15M over 15 years. They execute an estate freeze, taking back $5M of preferred shares; a family trust subscribes for new common shares for nominal value. Fifteen years later, the company is sold for $15M. The founder's tax liability at death (or sale) is capped at the gain on $5M. The $10M of growth accrues to the trust beneficiaries (typically children), each of whom can apply their own LCGE ($1.25M each in 2026, indexed) — potentially sheltering $5M+ of family gain. Versus doing nothing, the family tax saving on the $10M of growth alone is typically $1.5M–$2.5M depending on province and timing.
Common Questions
What is an estate freeze in Canada?
An estate freeze is a tax strategy that 'freezes' the current value of a business or investment for the founder, while passing all future growth to the next generation — usually through a Section 86 share reorganization and a family trust. The goal is to defer or reduce the capital gains tax payable at the founder's death.
Who should consider an estate freeze?
Canadian business owners with growth expectations, an identified succession path (children, key employees, or a family trust), and enough liquidity outside the corporation to fund their lifestyle without further upside in the company. It is most often used by owners aged 50+ with private operating companies or holding companies.
Can an estate freeze be reversed?
Partially. The freeze itself is generally irreversible without triggering tax. However, the preferred shares the founder takes back can be redeemed strategically over time, and a 'thaw' (refreeze at a lower value) is possible if the company's value drops. These are advanced strategies and require coordinated tax counsel.
Is a family trust required for an estate freeze?
No, but the family trust dramatically improves flexibility. A trust allows future growth to accrue to a class of beneficiaries (children, grandchildren, even charity) rather than locking it to a specific person, and gives the trustees discretion over how and when to distribute. The 21-year deemed disposition rule must be planned for in any trust structure.
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