A business owner completes an estate freeze, taking back preferred shares with a fixed redemption...

An estate freeze fixes the value of the owner’s current interest and shifts future growth to the next generation or a trust. The owner usually receives preferred shares with a fixed redemption value. The risk is that the retained interest may not provide enough cash flow, liquidity, or inflation protection over the owner’s lifetime, especially if dividends are not paid or the business underperforms. Option A is wrong because future growth is precisely what the common shares are intended to capture. Option C reverses the purpose of the freeze. Option D is incorrect because the freeze does not eliminate tax; it caps the owner’s future growth exposure and may reduce future estate tax growth if properly implemented. A planner should assess retirement income sufficiency, control, voting rights, dividend policy, shareholder agreement terms, valuation support, corporate liquidity, and the owner’s tolerance for reduced flexibility. Legal and tax advice is essential. References/topics: estate freeze, preferred shares, succession planning, income adequacy risk.

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