The Investment Dealers Association has issued a notice to address regulatory issues where a member firm wishes to effect a reorganization of its issued and outstanding shares for the purpose of an estate freeze.

The notice sets out the requirements for regulatory approval and conditions in which retraction or redemption of shares at the option of the holder issued in an estate freeze are permitted to be treated as regulatory capital.

Any firm contemplating an estate freeze is required to obtain accounting, tax and legal advice. Firms must provide 20-day notification of any planned reorganization.

The primary purpose of estate freezing is to freeze all or part of the value of growing assets at their current fair market value, such that future growth in these assets accrues to the next generation of family members.

The result will be that this future growth will not be taxed in the hands of the taxpayer on a disposition or at his or her death. Growing assets subject to the freeze may include common shares of an operating company such as a member firm.

For purposes of obtaining regulatory approval for an internal estate freeze reorganization of a member firm, and accounting for the special class of shares as regulatory capital, several conditions must be satisfied.

Based on the conditions being satisfied, the IDA will consider approval of member firm notifications of estate freeze reorganizations.