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A Tax Accountant’s Thoughts about               Managing Tax Driven Estate                                Planning        ...
Opening Observations•   Effective estate planning really needs to address the tax    consequences arising before, on and a...
Process•   Assemble Team•   Gathering Facts•   Determining Objectives
Process cont’d                 •   Structural Considerations                 •   Estate Freeze methods                 •  ...
Evolution of a Freeze StructureA.   The Beginning                D                 M                       0p1
Evolution of a Freeze StructureB.   Round One                                       D & M, C1-C3            D&M           ...
Evolution of a Freeze StructureC.   Round Two                                                                    C1-C3    ...
Evolution of a Freeze StructureD. Currently                                                              C2 & Family      ...
Team•   Members•   Inter-action•   Responsibilities
Gathering Facts•   Family Background•   Business Background
Objectives•   Keep the process going!!•   Tax minimization•   Recognition of latent tax liabilities•   Financial security•...
Objectives cont’d•   Retention of control•   Flexibility•   Fair treatment of family members•   Charitable intentions•   M...
Structural Considerations                            •   Utilization of enhanced CGD                            •   Credit...
Trust Issues•   Types of trusts•   Trust rules•   Drafting trusts•   Use of Offshore trusts
Structural Considerations cont’d•   Share rights•   Probate planning•   Impact of anti-avoidance rules
Anti-avoidance Rules•   Attribution rules•   Benefit rules•   Stripping rules•   GAAR
Freeze Methods•   Taxable transfers•   Capital Reorganizations•   S.85 Freezes
Section 85 Freezes•   Holding company•   Internal Freeze•   Drop-down
Holding Company Freeze           X                Family(trust)    Pref                    common               Holdco    ...
Internal Freeze            X            Family(trust)     Pref                common                  Opco
Drop down freeze                   X              Old Opco             Family/Employees                       preferred   ...
Freeze Methods cont’d•   Amalgamation•   Partnership•   Stock dividend
Implementation•   Timing•   Liquidation of freeze shares•   Managing the growth
Managing the Growth•   Participants in Trust•   Contingent participation rights•   Shareholder agreements•   Refreezing an...
Non-tax Considerations•   Operational considerations•   Accounting and financing•   Shareholders Agreement•   Family Law i...
Advanced Issues•       Valuation    •     Date of freeze    •     Death•       Post-mortem planning    •     Pipeline    •...
Pipeline Example 1/3                 Estate                         common   Cost 100                                  FMV...
Pipeline Example 2/3              Beneficiaries    Estate             Sells shares for        Newco             $1,000 not...
Pipeline Example 3/3After Section 88 Windup                              Beneficiaries    Estate             Owes         ...
Advanced Issues cont’d•   Emigrating family members•   Blended families•   Integration with date of death planning•   Mana...
Seven “C’s” of Planning•   Change – want to implement•   Culture – how does the family work•   Choice – multiple options• ...
Seven “C’s” of Planning cont’d•   Complexity – of choices and in concepts•   Critical thinking – balance theory and practi...
Key Take-Aways•   Freeze not really simple•   Should not be “one shot” engagement•   Documentation is important
Tim Duholke - The Estate Freeze Process
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Tim Duholke - The Estate Freeze Process

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Tim Duholke - The Estate Freeze Process

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Tim Duholke - The Estate Freeze Process

  1. 1. A Tax Accountant’s Thoughts about Managing Tax Driven Estate Planning Tim Duholke, FCAEstate Planning Council of Vancouver Senior Tax AdvisorApril 18, 2012 Davis LLP
  2. 2. Opening Observations• Effective estate planning really needs to address the tax consequences arising before, on and after death• Estate freezing can be an important fundamental consideration in succession planning• Proactive planning should save tax
  3. 3. Process• Assemble Team• Gathering Facts• Determining Objectives
  4. 4. Process cont’d • Structural Considerations • Estate Freeze methods • Living the Freeze • Other issues
  5. 5. Evolution of a Freeze StructureA. The Beginning D M 0p1
  6. 6. Evolution of a Freeze StructureB. Round One D & M, C1-C3 D&M T1 Pref 1 Ho1 0p1
  7. 7. Evolution of a Freeze StructureC. Round Two C1-C3 T2 Common D&M D & M, C1-C3 Pref 1 In1 Common T1 Ho2 Pref D, C2 Pref Ho1 VT 0p4(US) 0p1 0p2 0p3
  8. 8. Evolution of a Freeze StructureD. Currently C2 & Family T3 T2 T1 Common D&M Pref 1 Pref 2 Common Pref 2 Common In1 Pref C2 D, C2 Ho2 Ho1 Pref 3 VT 0p1 0p2 0p3 0p4 (US)
  9. 9. Team• Members• Inter-action• Responsibilities
  10. 10. Gathering Facts• Family Background• Business Background
  11. 11. Objectives• Keep the process going!!• Tax minimization• Recognition of latent tax liabilities• Financial security• Asset protection
  12. 12. Objectives cont’d• Retention of control• Flexibility• Fair treatment of family members• Charitable intentions• Maintain qualification for QSBC status
  13. 13. Structural Considerations • Utilization of enhanced CGD • Creditor protection • Income splitting • Age of parents • Utilization of trusts
  14. 14. Trust Issues• Types of trusts• Trust rules• Drafting trusts• Use of Offshore trusts
  15. 15. Structural Considerations cont’d• Share rights• Probate planning• Impact of anti-avoidance rules
  16. 16. Anti-avoidance Rules• Attribution rules• Benefit rules• Stripping rules• GAAR
  17. 17. Freeze Methods• Taxable transfers• Capital Reorganizations• S.85 Freezes
  18. 18. Section 85 Freezes• Holding company• Internal Freeze• Drop-down
  19. 19. Holding Company Freeze X Family(trust) Pref common Holdco common Opco
  20. 20. Internal Freeze X Family(trust) Pref common Opco
  21. 21. Drop down freeze X Old Opco Family/Employees preferred New Opco
  22. 22. Freeze Methods cont’d• Amalgamation• Partnership• Stock dividend
  23. 23. Implementation• Timing• Liquidation of freeze shares• Managing the growth
  24. 24. Managing the Growth• Participants in Trust• Contingent participation rights• Shareholder agreements• Refreezing and thawing
  25. 25. Non-tax Considerations• Operational considerations• Accounting and financing• Shareholders Agreement• Family Law issues
  26. 26. Advanced Issues• Valuation • Date of freeze • Death• Post-mortem planning • Pipeline • S.164 (6) • Use of life insurance
  27. 27. Pipeline Example 1/3 Estate common Cost 100 FMV 1,000 Opco Land cost 100 FMV 1,000
  28. 28. Pipeline Example 2/3 Beneficiaries Estate Sells shares for Newco $1,000 note Cost 1,000 FMV 1,000 Opco Land cost 100 FMV 1,000
  29. 29. Pipeline Example 3/3After Section 88 Windup Beneficiaries Estate Owes Newco $1,000 Land cost 1,000 FMV 1,000
  30. 30. Advanced Issues cont’d• Emigrating family members• Blended families• Integration with date of death planning• Managing the 21 year rule on trusts
  31. 31. Seven “C’s” of Planning• Change – want to implement• Culture – how does the family work• Choice – multiple options• Core concepts – need to understand
  32. 32. Seven “C’s” of Planning cont’d• Complexity – of choices and in concepts• Critical thinking – balance theory and practical• Care for client – now and in future
  33. 33. Key Take-Aways• Freeze not really simple• Should not be “one shot” engagement• Documentation is important

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