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Categories: General Tax Terms

Estate Freeze

An estate freeze is a financial planning strategy used to limit the future growth of an individual’s estate for tax purposes. This approach involves transferring the appreciation of assets to heirs or beneficiaries while retaining the current value of those assets within the estate.

The primary objective of an estate freeze is to minimize estate taxes upon death by "freezing" the value of the estate at its current level. Any future appreciation in value is transferred to beneficiaries, effectively removing this appreciation from the individual’s estate.

For example, if a business owner holds shares worth $1 million, an estate freeze can be executed by transferring ownership of the shares to the next generation while retaining the current value, allowing the heirs to benefit from any future increase in the shares’ value without it being subject to estate tax when the owner passes away.

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Alternative Meanings:
  • Estate Freeze

    Estate Freeze

    An estate freeze is an estate planning strategy used primarily to minimize future estate taxes and transfer wealth to heirs.

    In an estate freeze, the current value of an individual's assets is "frozen" at its present value for estate tax purposes. The individual transfers future appreciation of the assets to beneficiaries, typically through mechanisms such as trusts or gifting. This means that any increase in value after the transfer is not included in the individual's taxable estate.

    For example, if a parent owns a business valued at $1 million, and they implement an estate freeze, they may transfer ownership of the business to their children while retaining a fixed interest. As the business grows in value, only the appreciation beyond $1 million is subject to estate taxes, allowing the children to benefit from the increased value without incurring tax liabilities on the original value.

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