If you already own fixed-value preferred shares in your company, you can still take advantage of the reduced value of your underlying investments and lower your future tax bill through what is commonly referred to as a “thaw and re-freeze” strategy. In certain circumstances, this could result in a reduction of estate taxes of over $400,000. An estate freeze could capture this value in a set of preferred shares now worth $3.5 million. Today, you hold the same investments but they’re worth around $3.5 million. To illustrate the potential tax savings of this strategy, let’s say you, or a company that you own, has investments that were worth $5 million in the market a month ago. These new shares would not increase in value as the markets recover, thereby locking in the taxable value of your investment at that lower value. While there are different ways to accomplish this goal, in broad terms, an estate freeze involves transferring your investments into a corporation, or exchanging the shares in your already-existing corporation which owns your investments, for new fixed-value preferred shares. This provides you and your family with greater financial certainty as you can more accurately estimate, and plan for, the amount of taxes that will be owing at death. However, if you own these investments through a corporation, you can freeze their value at today’s market prices using an estate freeze. On the date of death, you are deemed to have disposed of all your assets, including your investments, at their fair market value. The main benefit of an estate freeze comes from allowing you to cap the value of the estate taxes associated with your investments when you eventually pass away. Estate freezes establish fixed valueĪn estate freeze is a tool that lets you “freeze” the value of your investments for tax purposes. Specifically, an estate freeze can help you take advantage of current market conditions while providing you with some financial security and greater certainty in the future. Yet, while you can’t control what’s happening in the markets, there are tax-planning tools that can still give you some control over your financial well-being. If you’re a business owner, or have substantial investment assets, you might feel especially challenged by the current market conditions. In the midst of the COVID-19 pandemic, many things are currently outside of your control.
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