What is an Estate Freeze?
An estate freeze is an estate planning strategy used by an owner to lock in an asset's value and avoid future tax liability when the asset is transferred to a beneficiary.
How Does an Estate Freeze Work?
An estate freeze is commonly used for:
- Transfer of control of a privately-owned business between generations
- Division of income among family members
- Protection from creditors
- Tax deferment from shares sold of the privately-owned business
In most cases, an estate freeze is used when ownership of a company is passed from one generation to the next.
For example, when a business owner (parent) is ready to "pass the torch" to their beneficiaries (children), they may exchange their common stock in the company for preferred shares. The company then issues new common stock to the beneficiaries (children).
Why Does an Estate Freeze Matter?
By transferring the asset to their beneficiaries before the tax liability comes due, the current owners (parents) are able to control the asset during their lifetimes and pass it on to their beneficiaries (children), but without having to pay the tax liability associated with the increase in the asset's value.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
