Estate Freezes: Lock in 2025 Values

The owner of a $30 million Toronto real estate portfolio sat across from me, calculator in hand, working through the numbers one more time. "If the capital gains inclusion rate increases again in 2026, and my properties keep appreciating, my children could face $8 million in taxes instead of $5 million." His solution: an estate freeze before year-end, locking in 2025 values and tax rates while shifting future growth to the next generation. With potential tax changes looming and asset values at historic highs, October 2025 represents a critical decision point for business owners and wealthy families across the GTA. Here's why estate freezes deserve urgent consideration and how to execute them before the December 31 deadline.

Understanding Estate Freezes: Locking in Today's Values

An estate freeze is a tax planning technique that caps your tax liability at current values while allowing future appreciation to accrue to your beneficiaries. You exchange growth assets for fixed-value preferred shares, with common shares issued to children or trusts. The strategy "freezes" your estate's value for tax purposes while maintaining control.

Why Now? The 2025-2026 Tax Landscape

Multiple factors make Q4 2025 potentially the last opportunity for favorable estate freeze conditions. The convergence of high asset values, changing tax rules, and economic uncertainty creates a unique planning window that may not recur.

Types of Estate Freezes: Choosing Your Structure

Internal Freeze (Section 86)

The simplest freeze structure involves exchanging common shares for preferred shares within an existing corporation. New common shares are issued to children or a family trust. This works well for single corporations with straightforward ownership.

Holdco Freeze (Section 85)

Transfer assets to a new holding company in exchange for preferred shares, with common shares issued to successors. This structure provides more flexibility and creditor protection but involves greater complexity and cost.

Asset Freeze

For real estate and investment portfolios outside corporations, assets transfer to a new corporation using Section 85 rollover provisions. This creates the corporate structure necessary for freezing while deferring immediate tax.

Valuation: The Critical Foundation

Accurate valuation underpins successful estate freezes. The CRA scrutinizes freeze transactions, particularly those appearing to minimize tax through undervaluation. Professional valuations provide defensibility and peace of mind.

The Family Trust Advantage

Issuing new common shares to a family trust rather than directly to children provides significant advantages: flexibility in distributions, creditor protection, and avoiding family law claims. The trust can sprinkle income among beneficiaries based on their tax situations and needs.

A Vaughan manufacturing family recently froze their $15 million business, issuing common shares to a discretionary family trust. This structure allows income splitting among three children and five grandchildren while protecting against potential divorces and creditor claims.

Preferred Share Design: Maintaining Control and Income

Preferred shares received in the freeze must be carefully structured to achieve your goals. Terms include redemption rights, dividend rates, voting provisions, and retraction features. Balance control retention with tax efficiency and succession objectives.

Real Estate Portfolio Freezes

GTA real estate owners face unique freeze considerations. Properties may be held personally, in multiple corporations, or through partnerships. Each structure requires different freeze techniques and tax planning.

Consider transferring properties to a new corporation, taking back preferred shares worth current fair market value. Future appreciation accrues to common shares held by children or trusts. This locks in your tax liability while preserving rental income through dividends.

Operating Business Freezes

Active businesses require careful freeze structuring to maintain operations and employee confidence. Key employees might receive common shares or options, creating alignment with family successors. Consider implementation over time rather than overnight transformation.

Tax Implications and Elections

While estate freezes defer tax rather than eliminate it, proper structuring minimizes immediate costs. Section 85 and 86 rollovers allow tax-deferred exchanges, but elections must be filed correctly and timely.

Wasting Freezes and Refreezes

A "wasting freeze" gradually redeems preferred shares over time, providing retirement income while reducing future estate taxes. If values decline significantly after freezing, consider a "refreeze" to reset at lower values, though CRA scrutiny increases with multiple freezes.

International Considerations

Families with U.S. connections face additional complexity. Estate freezes may trigger U.S. gift tax for U.S. persons or affect treaty benefits. International tax advice is essential before proceeding with cross-border freeze structures.

Implementation Timeline for Year-End

Common Pitfalls to Avoid

Case Study: The Perfect Freeze

A Richmond Hill family with a $25 million commercial real estate portfolio executed a textbook freeze in October 2025. They transferred properties to a new holding company, taking back $25 million in preferred shares paying 5% dividends. Common shares went to a family trust for three children and future grandchildren.

The parents maintain control through voting preferred shares while receiving $1.25 million annual dividend income. Future appreciation benefits the next generation at lower tax rates. If properties double in value over 10 years, the family saves approximately $4 million in taxes.

Professional Team Requirements

Estate freezes require coordinated professional expertise. Your team should include tax lawyers, accountants, valuators, and financial planners. Each plays a critical role in structuring and implementing successful freezes.

Conclusion: The Window Is Closing

Estate freezes represent powerful tax planning tools, particularly in uncertain tax environments. With potential 2026 changes and current high valuations, Q4 2025 may offer the last opportunity for optimal freeze conditions.

The real estate owner from our introduction proceeded with his freeze, locking in $30 million value at current tax rates. His children will benefit from future appreciation while he maintains control and income. More importantly, he gained certainty in an uncertain world.

Don't let procrastination cost your family millions. The December 31 deadline approaches quickly, and proper implementation takes time. Act now to lock in 2025 values and protect your legacy.