Estate Freezes for Small Business Owners: Legal Structure and Mechanics

In March 2024, the sole owner of a dental practice in Red Deer, Alberta initiated an estate freeze to transfer future business growth to 3 adult children. The practice, operating through a professional corporation, carried a fair market value of $2.8 million at the freeze date based on an independent valuation. Under the proposed reorganization, the owner would exchange existing common shares for a new class of fixed-value preferred shares pegged at $2.8 million, while new common shares would be issued to a discretionary family trust for nominal consideration.

The structure raised several legal questions requiring resolution: whether the share exchange would qualify as a tax-deferred rollover under the Income Tax Act, whether the trust deed adequately addressed the 21-year deemed disposition rule, and how the amended corporate articles and shareholder agreements would allocate control and future obligations among the family members.

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