The classical estate freeze contemplates the common growth shares being issued to the next generation(s), often children and/or grandchildren.  For some background, please see my prior entry on a primer for an estate freeze for general information on estate freezes and how they operate and the illustration above.

What is an estate freeze article link

What happens or what can be done in the situation where a child who is now an owner of shares of a company has a problem.  These problems could include  divorce, death or the fact that you do not want that child to be an owner any longer, for whatever reason, of the company.

What can you do?

1. you could take preventative measures at the outset and have the shares for the next generation(s) held in a discretionary trust.  With a trust, you could effectively “cut out” a beneficiary while the shares remain held by the trust.  The terms of how you allocate the ownership of the shares in the trust would be set out in the trust indenture.

2. you could have an obligatory buy back provision in the shareholders’ agreement in the instance where any of the above problems happen.

These can be complex issues and you should seek advice of a person experienced in the area of succession and estate planning.  If considered and addressed at the outset, you could save yourself a lot of grief and worry in the future.

Learn think apply!