Tax planning is the process of structuring your financial affairs within the applicable rules to allow you to defer and/or reduce the amount of taxes payable.
Paying taxes is an unavoidable reality. That being said, certain strategies exist to enable you to defer and/or mitigate the amount of taxes you pay. Since tax rules are always changing, it is imperative that your plan be continually monitored and updated. Tax planning is a large part of the wealth and estate planning process, and must be considered within each element of the plan.
An elderly client of Three60 had a sizable amount of property held within a corporation of which she was the sole shareholder. The intent was for this property to pass to her four children upon her death, but with a tax bill looming of around $4 million, the client was concerned about the impact this would have on her estate planning.
After much discussion, a “wasting freeze” plan was implemented. Using this strategy, we locked-in (froze) the value of her interest in the property in fixed value preferred shares, and issued new common shares to a trust for the benefit of her children. This allowed all new growth in the property to accrue within the trust. A strategy was then implemented to reduce the value of her preferred shares by redeeming them to provide her an income from these properties. Over time, this strategy allowed for the transfer of value away from her shares to the shares held in trust for the kids. The result of this planning allowed our client to reduce the amount of tax that would ultimately be owed on her death, deferring it until her children dispose of the property.
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