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Estate Freeze for Succession Planning of Owner-Managed Family Businesses


The existing shareholders of an owner-managed family business that has decided not sell their ownership interest to a third party may implement succession planning to transition their ownership interests to a family member(s).   Our example will assume that following:


  • Mom & Dad are the existing shareholders of a business whose common shares has a current fair market value of $2 million ($1 million for each of their 50% ownership interests in the common shares).


  • the family has two adult children including:

    • Daughter who has been highly active with demonstrated  acumen in running the family business

    •  Son who has ventured into other academic, travel and pursuits outside the family business competitors.


Mom & Dad have retained professional advice from a team including the following:


  • Their accountant with knowledge of the business and all of its shareholders


Estate freeze, succession planning, Valuation, Financing, Transaction, Merger, Acquisition, Divestiture, Fairness Opinion, Corporate Finance, Financial Advisor
  • An experienced tax lawyer with succession planning experience


  • A qualified independent chartered business valuator


Mom & Dad have decided to implement a succession plan to transition the ownership of the common shares in the family business to the Daughter only if they can accomplish all of the following objectives:


  • Mitigate Mom & Dad’s tax liability on their ownership interest in the business upon their death to their existing tax liability assuming they were to die today

  • Ensure that the family business can support the cash flow retirement needs of Mom & Dad

  • Ensure that Mom & Dad retain control of the family business until their investment therein is fully paid out and they are ready to complete step away from the business from an employment perspective

  • Transition ownership such that the future growth in the value of their business will accrue to the Daughter who will be running the family business going forward

  • Ensure that peace is kept within family by ensuring that the Estate of Mom & Dad has sufficient liquidity to “equalize” the 50:50 entitlements of the Daughter & Son.


Estate Planning and an Estate Freeze can implemented to accomplish all of the objectives as follows:


  • The fair market value of the common shares of the business would be established with consideration to the following:

    • A valuation is determined based on a “notional market” depicting a hypothetical market in which the fair market value of the business is set

    • The valuation date is represented by the effective date of the estate freeze

    • A thoroughly documented valuation should be completed as the Canada Revenue Agency (“CRA”) has experienced valuators on staff who will likely review the basis of the valuation put forth by the Mom & Dad at the point of the Estate Freeze

    • A valuation report prepared by a qualified independent business valuator will assist in providing credibility to the valuation and mitigating problems with:

      • Between the parent and CRA

      • Between the parents and their two children

      • Between the Daughter and the Son


  • Mom & Dad would exchange their existing common shares for preferred shares in the family business which based on our example would be $2 million with the following plan going forward:

    • A dividend rate of 5% on the $2 million redemption value of the preferred shares would be paid annually such that $100,000 in dividends ($50,000 per annum to each of Mom & Dad) would be paid to fund the retirement needs of the parents

    • Mom & Dad would not plan to redeem their preferred shares in the family business and would plan to have their Daughter inherit the preferred shares upon their death. 

    • Mom & Dad would purchase life insurance of $1 million which would name the Son as its beneficiary to recognize his 50% entitlement in the redemption value of the preferred shares that the Daughter would be entitled to inherit pursuant to the estate planning and related will. If for unforeseen reason, some or all of the preferred shares are redeemed by the parents prior their death, the life insurance policy (and related premium) would be reduced by 50% of the amount of the preferred share redeemed.

    • The succession plan would mitigate income taxes that would be payable on the preferred shares outstanding upon the death of the parents through crystallization of the respective lifetime capital gains exemptions of the parents.


  • Mom & Dad would continue to retain control of the family business by ensuring that the succession planning ensures that they sufficient voting privileges on their preferred shares to accomplish that objective.


Quantum Advisory understands the Estate Planning and Income Tax objectives of family-owned businesses and is qualified to undertake Valuations for such purposes based on the following considerations:


  • Our Independence –The professional standards of the Canadian Institute of Chartered Business Valuators (“CICBV”) under which our firm abides prohibits us from undertaking valuations if we are not independent both in fact and in appearance.  Accordingly, the shareholders, heirs and advisors of family-owned businesses can rest assured that our firm is independent in completing its Valuations.


  • Our Experience – Valuations should only be undertaken if the firm has the requisite experience.  Our firm’s experience is available as follows:

    • To access our Experience by Industry click here 

    • To access our Experience of Succession Planning purposes click here

    • To access our Experience for Income Tax purposes click here


  • Our Competitive Professional Fees – Our firm strives to render its Valuations at competitive fees without sacrificing on our stringent professional or reporting standards.  A Calculation of Value report being the most cost effective is typically sufficient for Succession Planning and/or Income Tax purposes.


Claude Conan, CA, CPA, CBV, MBA (Founder and President of Quantum Advisory Inc.) can be reached by telephone at 780.669.9724 or email at

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