If you turned on the news, you likely heard most economists predicting the Canadian economy going into recession in 2023. While a recession is not a good thing, it gives some business owners a unique opportunity to significantly increase their generational wealth through an Estate Freeze.
Estate Freeze During a Business Downturn
During a recession, the value of your business may be down compared to the good years. And this may be for a short period. While the value is down, you can freeze the value of your share in the business and pass on the future growth to your children and grandchildren. This process is called an “Estate Freeze.”
Discover the Benefits of Estate Freeze: A Real-Life Success Story of One of Our Clients
Here’s an adaptation of a real-life scenario with one of our clients who recently completed an Estate Freeze.
Gabriel owns Mango Endeavors, a business that makes all kinds of deserts using the best mangos in the world. It is 2023, and due to the economy, the valuation of his business is down from $10 million to $6 million. The business has good fundamentals and a track record. Gabriel expects the valuation to pick up to $10 million when the recession is over. Gabriel is getting near retirement, and his two kids, Michelle and Mariam, will take over the business. He needs to make life-altering decisions like how much life insurance to buy to pay for his taxes upon death so that the business or his kids don’t have to foot the bill.
Gabriel was stressed. He got on a call with LRK Tax, and upon discussing his life plan, we introduced him to the “Estate Freeze,” which put a smile on his face.
How Does the Estate Freeze Increase Your Generational Wealth?
Without getting into the nuts and bolts, an Estate Freeze is a bunch of tax and legal transactions that will freeze the value of Gabriel’s business at a value of $6 million. By doing the Estate Freeze, Gabriel will increase his generational wealth by a little more than $1.5 million.
First, When Gabriel passes away, if the value of the business gets back up to $10 million, he would pay taxes of $2.5 million. This means Gabriel’s tax upon death gets reduced to $1.5 million.
Secondly, in Ontario, we have something called the Estate Administration Tax (or what is commonly called the “Probate Tax”). The Probate Tax in Ontario is 1.5%. Gabriel would have paid Probate Tax of $150,000. With the Estate Freeze, his Probate Tax gets reduced to $90,000, saving him $60,000.
Peace of Mind and Insurance
Even more, Gabriel knows exactly what his death taxes will be. So, he knows exactly how much insurance to buy to cover the tax, giving him peace of mind knowing that the business can go on without disruption and his customers are kept happy. Gabriel was glad he had a conversation with us.
Get in Touch With Us About a Custom Estate Freeze Designed for You
Transform your legacy with a custom Estate Freeze crafted to fit your unique life and estate plan. Let our tax experts guide you on this journey and bring your vision to life with ease and confidence. Our expertise and experience ensure a seamless and stress-free implementation, with our team working hand in hand with your lawyer. Discover peace of mind as we walk you through every step and educate you on the intricacies of Estate Freezes. Empower yourself to shape your legacy today!
