What’s an estate freeze and when should I do one?
An estate freeze exchanges your existing common (growth) shares in an active corporation for fixed-value preferred shares at today’s FMV under a joint s. 85 or internal s. 86 rollover, and issues new common shares to the next generation (usually via a family trust) at a nominal price. Your future tax liability at death is frozen at today’s FMV; all subsequent growth accrues to the new common shares.
Mechanism example: Bader (age 55) owns 100% of Opco with FMV $2,000,000, cost $100. He rolls his common shares under s. 86 in exchange for redeemable retractable preferred shares with FMV $2,000,000. Concurrently, a family trust subscribes for new common shares at $100. Bader’s shares are now fixed at $2M FMV; on his death he pays capital-gains tax on the $1,999,900 accrued gain (about $535,000 at 2026 Ontario top rate on the $2M x 50% inclusion). All growth from that day forward accrues to the family trust’s common shares. If Opco doubles to $4M by Bader’s death, the second $2M of growth is taxed to whichever beneficiary holds the shares – potentially at a lower marginal rate and potentially sheltered by their own $1,275,000 LCGE.
When to do it: when the business is worth enough that the frozen tax bill is a meaningful percentage of net worth, when growth is likely to continue, and when family succession is realistic within a generation.
Common vehicles: s. 86 internal reorg (no new corporation); s. 85 rollover to a new Holdco; combined with a family trust as new-common-share holder for maximum flexibility.
Note: An estate freeze is a one-way door on the tax cost of the preferred shares. Do not freeze at an inflated valuation; a bad appraisal locks in an oversized deemed-disposition liability at death. Get a defensible independent valuation.
Source: canada.ca â Deemed dispositions on death
— Bader A. Chowdry, CPA, CA, LPA — Insight Accounting CPA
Disclaimer: Bader A. Chowdry, CPA, CA, LPA is a Licensed Public Accountant regulated by CPA Ontario. Insight Accounting CPA Professional Corporation is a Chartered Professional Accountant firm. This content is general information only and does not constitute professional advice for your specific facts. Confirm current rules and figures with your own advisor before acting.