ESTATE FREEZE

An asset management strategy whereby an estate owner aims to transfer assets to his or her beneficiaries without tax consequence. In most estate freezes, the estate owner transfers assets, usually common stock, to a company in exchange for preferred shares. The company issues new common stock to the beneficiaries at a nominal value.

This strategy looks to avoid capital gains tax. When the owner exchanges assets for preferred stock, there will be no capital gains on the exchange. The company will give the beneficiaries new common shares at market value, so that no capital gain exists for the receiving parties. Because preferred shares are non-growth securities, the original owner will not incur future capital gains taxes on these instruments.