Estate Freeze

Estate Freeze means:
an attempt by a taxpayer to keep the value of an estate at a minimum (possibly undervalued) by the timely transfer of a business interest in a family enterprise to a family member or members. This interest may be transferred at full value at this freeze point, with the transferee(s) (generally the younger generation) able to enjoy any appreciation in value that occurs in the future. However, the transferor (i.e., the parent) ordinarily maintains some kind of control in the enterprise and may enjoy a large proportionate share of the income attributable to the enterprise.

The purpose, of course, is to keep estate taxes at a minimum in the estate planning process. The enterprise is transferred rather than retained in the estate, where it would be subject to taxes on the original owner's death. However, the transferor usually retains “substantial interest” in the enterprise, perhaps through voting control and/or the benefits of the income stream.

This estate freeze is ordinarily accomplished through some type of reorganization of the enterprise. In such a reorganization, the transferor normally transfers all common stock interests (the right to appreciation of the value of the enterprise over time) to a family member. The transferor retains preferred stock, which provides voting rights as well as an income stream of preferred dividends. Former IRC (check if this IRC provision is current here) §2702-2704.

See Dividend in the American Legal Encyclopedia and Dividend in the World Legal Encyclopedia.

See Inheritance Tax and Inheritance Tax.