Estate Freeze

AAA

DEFINITION of '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.

INVESTOPEDIA EXPLAINS 'Estate Freeze'

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.

RELATED TERMS
  1. Widow's Allowance

    An allowance of funds and/or personal property received by a ...
  2. Life Estate

    A type of estate that only lasts for the lifetime of the beneficiary. ...
  3. Estate Planning

    The collection of preparation tasks that serve to manage an individual's ...
  4. Estate Tax

    A tax levied on an heir's inherited portion of an estate if the ...
  5. Beneficiary

    Anybody who gains an advantage and/or profits from something. ...
  6. Estate

    All of the valuable things an individual owns, such as real estate, ...
Related Articles
  1. Retirement

    What Is A Will And Why Do I Need One?

    Putting this document together will save your family time and money, and give you peace of mind.
  2. Options & Futures

    Getting Started On Your Estate Plan

    With some preparation, you can save your heirs from paying a hefty estate tax. Here are some tips.
  3. Options & Futures

    Three Documents You Shouldn't Do Without

    Estate planning is not just about the division of assets after you die. Read on to save your loved ones extra grief.
  4. Options & Futures

    Your Will: Why You Need A Power Of Attorney And Beneficiaries

    What would happen if you were suddenly unable to manage your financial affairs? Preparation is the best protection.
  5. Personal Finance

    Get Ready For The Estate Tax Phase-Out

    Changes to federal legislation will affect how your assets are treated once you're gone - be prepared.
  6. Retirement

    Skipping-Out on Probate Costs

    Don't let bad estate planning lead to unnecessary costs and stress for your inheritors.
  7. Fundamental Analysis

    What are the components of shareholders' equity?

    Understanding company valuation figures, such as shareholders' equity, can be a powerful tool in assessing the financial strength of a business.
  8. Trading Strategies

    What are the pros and cons of owning preferred stock instead of common stock?

    Understand and explore the advantages and disadvantages of owning preferred stock as opposed to owning common stock shares in a company.
  9. Budgeting

    Can trust funds be activated before the grantor intended?

    Trust law gives the grantor specific rights over the release of assets and therefore it is not possible to change the stipulations without his or her consent.
  10. Retirement

    What are the keys to setting up a trust fund?

    Setting up a trust to secure your assets for a beneficiary allows you to set the terms under which the beneficiaries are allowed to access these assets.

You May Also Like

Hot Definitions
  1. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  2. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  3. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  4. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  5. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
  6. Bank Guarantee

    A guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor ...
Trading Center