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.

BREAKING DOWN '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. 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.
  5. 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.
  6. Retirement

    Skipping-Out on Probate Costs

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

    Who is a Beneficiary?

    A beneficiary is a person or entity that receives funds, assets, property or other benefits from a trust, will, or life insurance policy.
  8. Professionals

    How to Protect Elderly Clients from Predators

    Advisors dealing with older clients face a specific set of difficulties. Here's how to help protect them.
  9. Taxes

    How to Tell if You Need an Estate Planning Lawyer

    Estate planning is an important and often neglected part of financial planning, which can be costly when avoided or done improperly.
  10. Retirement

    Inherited IRA and 401(k) Rules: Don't Run Afoul

    What you need to know when it comes to the complex rules for inherited IRAs and 401(k)s.
RELATED FAQS
  1. Can I put my IRA in a trust?

    You cannot put your IRA in a trust while you are living. You can, however, name a trust as the beneficiary of your IRA and ... Read Full Answer >>
  2. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  3. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  4. How does the trust maker transfer funds into a revocable trust?

    Once a revocable trust is created, a trust maker transfers funds or property into the trust by including them in a list with ... Read Full Answer >>
  5. What is the difference between a revocable trust and a living trust?

    A revocable trust and living trust are separate terms that describe the same thing: a trust in which the terms can be changed ... Read Full Answer >>
  6. How many votes am I entitled to, if I own ordinary shares of a company?

    If an investor owns one ordinary share of a company, that investor is entitled to one vote on all of that company's major ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  2. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  3. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  4. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  5. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  6. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!