Steps In An Estate Freeze with Chris Sabat | E070

On this episode of FPCBO, Jason Pereira talks to Chris Sabat - General Counsel McMillan Estate Planning. Today Chris is going to talk about a deeper dive into statement freezes.

Episode Highlights:
1.16 Chris is a lawyer working with a team of lawyers, accountants, financial planners, and state planners at Macmillan Estate Planning Company in Calgary. Primarily McMillan serves entrepreneurial families throughout Western Canada.
2.44 Jason says we all in our own industries get caught up in jargon and our level of what we consider based on proficiency or base understanding, but that’s not what the average person thinks. Sometimes it is easy for us to get carried away, and sometimes it translates into something that is very simple and powerful.
3.05: According to Chris, Estate freeze is sort of a revenue Canada taxation of your state. What you’re doing is you’re freezing the tax liability. That will be imposed upon your passing and transferring that value deferring that taxation into the hands of your children or successive generations. In a nutshell if we want to stop the increased taxation of your estate while still providing you with access to that value, should you happen to need it.
6.48 Chris says as a first step, we must have a value. Whether it is an investment account that is the subject of the freeze, whether it is a real estate portfolio that contains primarily passive assets, or whether or not it’s an active company qualified small business corporation. We need to have some sort of valuation.
8.35: As per Chris, entrepreneurial families don’t want to give up control. They always want to have some control over the business and its future going forward.
11.05 Chris highlights the huge negative around the transfer or the direct transfer. It is like having the children as individuals subscribed to the grocers, a huge downside of that is that the children actually own shares. If the children own shares, that means Mom and Dad can’t be in control.
13.14: Another huge advantage with the family trust from my perspective, especially for your qualified small business corporation, is the ability to multiply your lifetime capital gains exemption or the lifetime capital gains exemption that applies for the business, says Chris.
16.02 Chris: One reason that the unwinding of the estate freeze comes about is because the vast majority of trusts have a 21-year deemed disposition, so we do the estate freeze. We have given the growth value to the family trust 21 years in the future. Revenue Canada in essence, gives you one of two options. You can pay the taxes on the capital gains; the family trust can pay the taxes or roll their shares out to one or more beneficiaries. So, it is not uncommon in families to see a freeze done maybe at least a couple of times during their lifetime.
21.09: Talking about section 208, Jason inquires how does the misery, that is, the complications of that section of the act, impact? How is it to be approached at this point?
21.27: Chris explains bill C208 is the law. It is not finalized. Revenue Canada has made it clear, or the Department of Finance has made it clear that they are going to propose amendments to Bill C208. What Chris likes about Bill C208 is that, in a sense, there is maybe a recognition that business succession planning is a long-term exercise.

3 Key Points:
1. The one thing unique about McMillan is that all professionals need to be involved in accountants, lawyers, experts, and things like business, succession, etc. So, all of those individuals have been brought under one roof.
2. The kind of first level of an estate freezes it is about limiting capital gains on passing and then where it really becomes powerful. We can really create value, or at least minimize the taxation that is going to be imposed upon events like the sale of a business.
3. The problem historically around succession planning was that there was a penalty if you happen to sell your shares to your children. It was treated as a dividend. With Bill C208, ultimately, what we are going to be able to do is facilitate transactions where there is actually an intergenerational transfer of the company shares, and you will be able to utilize that lifetime capital gains exemption. So, it does work in conjunction with an estate freeze.

Tweetable Quotes:
“In a nutshell, the bottom line about Estate Freeze is we are stopping the growth in one person’s name and passing it on to another generation’s name.” - Jason Pereira
“Family trust is often the preferred method.” - Chris
“Bill C 208 once cleaned up it still stays true to the actual spirit of what you trying to do, would actually maybe eliminate for that would allow that deemed dividend on a wasting freeze to become a capital gain.” – Jason

Resources Mentioned
Facebook – Jason Pereira’s Facebook
LinkedIn – Jason Pereira’s LinkedIn
Woodgate.com – Sponsor
LinkedIn – Jason Pereira’s LinkedIn
Chris Sabat: Website | LinkedIn