The Estate Freeze

You may have heard about a farm estate freeze before, but you don’t really know what it is. In a typical farm corporation, the value of the shares grows as the land and equipment appreciate. An estate freeze “freezes” the value of the shareholders at its current Fair Market Value. What the parents would do is they would exchange their common, or growth shares, for fixed value preferred shares. The result is the new common shares issued to the next generation for a nominal price.

From that day forward, every dollar the farm increases in value belongs to the children, not the parents. There are multiple reasons why you would use an estate freeze including capping the deemed disposition tax, multiplying your Lifetime Capital Gains Exemptions, and still maintaining control without ownership.

If you have children that may eventually be in the farm, consider learning about estate freezes for your farm corporation and how they work. Our team works with farm legal experts to help design your farm transition.

When should a farm operation use an estate freeze?

The first and most common is the successor or successors are certain. You only want to freeze the corporation when you are confident the next generation is committed. If you freeze for a child who later leaves the farm, bringing that value back to a different sibling is complex and costly.

Another reason to do an estate freeze is the next generation wants to start participating in the growth of the operation. I’ve seen it so many times where the parents are in their 70’s and don’t want to give up control of their operation to a child that has been working on the farm for 20 years already.

It might be time to freeze the value of everything in the farm so now the farming child can participate in the growth of the operation.

Connect with us to learn more about our approach.