$5M Net Worth Calculator: Estate Freeze, Holding Companies, and the Math Behind Each

Probate Exposure by Province: What $5M Actually Costs

Probate fees (or estate administration tax) vary dramatically across Canada. They apply to assets that pass through your will — not to assets with named beneficiaries, jointly held property with right of survivorship, or assets inside corporations. At $5M, the provincial difference is material:

Ontario's $74,500 is the number that motivates most $5M estate planning. The math is straightforward: $5,000,000 − $50,000 = $4,950,000 × $15/1,000 = $74,250, plus $250 on the first $50K. This is a pure deadweight cost — it buys no service beyond the court validating your will.

The strategies to minimize probatable estate value are well-established: name beneficiaries on registered accounts (RRSP, TFSA, insurance), hold property jointly with right of survivorship, use an alter ego trust (age 65+), or hold assets inside a corporation (corporate assets do not form part of the shareholder's probatable estate — only the shares do, valued at fair market value). For context on how beneficiary designations work for large estates, see our Blended Family Beneficiary Allocation Calculator.

Corporate Holding Company: Tax Deferral Math

The holding company (holdco) is the foundational structure for $5M+ estates with active business income. The premise is simple: instead of extracting all corporate earnings as salary or dividends (taxed immediately at personal rates up to 53.53% in Ontario), you retain earnings inside the corporation where they are taxed at the small business rate of approximately 12.2% (combined federal/Ontario on the first $500K of active business income).

The Deferral Advantage: Year-by-Year Compounding

Critical caveat: this is a deferral, not an elimination. When funds are eventually extracted from the holdco as dividends, they face personal tax. The integration principle means the total tax paid (corporate + personal on extraction) should roughly equal what you would have paid personally — but “roughly” hides a 2–4% imperfection that typically favours the corporate route due to timing and the ability to control when extraction occurs.

The Passive Income Problem (TOSI and RDTOH)

Since 2019, the federal government has clawed back the small business deduction when a CCPC earns passive investment income above $50,000/year (the “grind” eliminates the SBD entirely at $150,000 in passive income). For a $5M estate with $2M+ inside a holdco, passive investment income of $50,000+ is almost inevitable at a 3–4% yield.

This means the holdco structure works best when: (1) the operating company continues to earn active income that benefits from the SBD, (2) passive investments are held in a separate holdco that does not claim the SBD, or (3) the business owner is planning an estate freeze that will shift future growth (and passive income) to the next generation's entity.

Estate Freeze Mechanics: When the Numbers Justify the Cost

An estate freeze is a corporate reorganization that fixes (freezes) the value of an owner's shares at today's fair market value, while future growth accrues to new common shares held by the next generation (often through a family trust). The most common mechanism is a section 86 share exchange:

1. The owner exchanges their common shares for preferred shares with a fixed redemption value equal to the current FMV of the company.
2. New common shares (nominal value) are issued to a family trust or directly to adult children.
3. All future growth in the company accrues to the new common shares.
4. At the owner's death, the deemed disposition is on the preferred shares at their fixed value — not at whatever the company has grown to.

Break-Even Analysis: $1.8M Business Value

Without freeze: the business grows to $1.8M × (1.10)^20 = $12.1M. Deemed disposition at death on $12.1M − adjusted cost base creates a massive tax liability. Assuming $200K ACB, the gain is $11.9M. After the $1.25M LCGE (if QSBC-qualified): taxable gain of $10.65M. At 66.67% inclusion: $7.1M included in income. Tax at ~50% marginal: approximately $3.55M.

With freeze: the deemed disposition at death is on the preferred shares frozen at $1.8M. Gain of $1.6M (less $200K ACB). After LCGE: $350K taxable gain. Inclusion: $233K. Tax: approximately $117,000. The growth shares held by the family trust are not triggered by the original owner's death.

Net savings: $3.55M − $117K − $35K setup − ($7K × 20 years ongoing) = approximately $3.26M in deferred/avoided tax. Even with much more conservative assumptions (5% growth, 10-year horizon), the freeze saves $200,000–$400,000.

Spousal Trust vs. Outright Bequest: NPV Comparison

When one spouse dies, assets can transfer to the survivor in two ways: an outright bequest (direct ownership transfer) or through a spousal trust (also called a “joint partner trust” for those 65+). Both qualify for the tax-deferred rollover under subsection 70(6) of the Income Tax Act — meaning no deemed disposition at the first death.

The difference is what happens after:

NPV Calculation: $3M in Trust vs. Outright

Assumptions: surviving spouse age 65, 20-year life expectancy, $3M in assets, 6% growth, $120K/year income need, Ontario probate rates.

Outright bequest: Survivor receives $3M directly. At death 20 years later, the remaining estate (approximately $2.8M after spending and growth) goes through probate: $41,800 in Ontario estate administration tax. Total to heirs: ~$2.76M.

Spousal trust: Trust holds $3M. Income flows to survivor; capital preserved by trustee. At survivor's death, trust assets bypass probate (trust does not die — it distributes). Administration cost over 20 years: $200,000 ($10K/year). Remaining trust value: ~$3.1M (more preserved due to trustee discipline). Total to heirs: ~$2.9M. Net advantage of trust: approximately $140,000 after admin costs — plus the non-financial benefit of asset protection from creditors, remarriage, and elder financial abuse.

The trust becomes more compelling at higher amounts and when the surviving spouse is vulnerable to financial pressure. For a detailed look at how spousal inheritance mechanics work provincially, see our Spousal Beneficiary Inheritance Calculator.

Worked Example: $5M Estate Breakdown

Meet Robert, age 58, Ontario resident. His $5M net worth is structured as follows:

Scenario A: No Planning (Naive Structure)

Robert dies at 78 with no estate freeze, no holdco, assets passing through his will:

• Business shares deemed disposition: $1.7M gain. LCGE shelters $1.25M. Remaining $450K at 66.67% inclusion = $300K taxable. Tax: ~$150,000.
• RRSP deemed disposition: $2M fully included in final return income. Federal + Ontario tax at top marginal: ~$1,000,000.
• Non-reg capital gains: $350K gain at 66.67% inclusion (exceeds $250K threshold in single year) = $233K taxable. Tax: ~$117,000.
• TFSA: $400K passes tax-free to named beneficiary.
• Ontario probate: All assets in will (assume no beneficiary designations on RRSP). Probate on $5M: $74,500.

Total tax + probate: approximately $1,341,500. Heirs receive ~$3.66M of the $5M estate.

Scenario B: Optimized Structure

Robert implements planning at age 58:

1. Estate freeze on business at $1.8M. Growth accrues to family trust. At death, deemed disposition on frozen preferred shares: $1.7M gain, LCGE shelters $1.25M, tax on $450K remainder: ~$150,000. Same as Scenario A for the freeze amount, but all future growth ($1.8M → $4.7M over 20 years at 5%) is outside his estate.
2. RRSP beneficiary designation: Names spouse as beneficiary. Rollover to spouse's RRSP — $0 tax at first death. Spouse draws down over 15+ years at lower marginal rates.
3. Non-registered: multi-year gain harvesting. Realizes $250K/year in gains at 50% inclusion over 2 years before death. Tax: $250K × 50% × 50% marginal = $62,500/year × 2 = $125,000 total (vs. $117,000 in one shot at the higher inclusion rate — in this case it is close, but eliminates the risk of the full 66.67% rate).
4. TFSA beneficiary designation: Named successor holder (spouse) — passes tax-free, no probate.
5. Probate minimization: RRSP ($2M) has named beneficiary, TFSA ($400K) has successor holder, business shares inside holdco (only share value, not underlying assets, is probatable — and freeze preferred shares may be held jointly). Probatable estate reduced to ~$800K (non-reg). Probate: $11,500.

The $880,000 difference is conservative — it does not include the value of business growth redirected to the family trust (potentially $2.9M over 20 years at 5% annual growth on a $1.8M base), which passes entirely outside Robert's estate.

For context on what a $1M milestone looks like and the typical asset allocation at that level, see our $1M Net Worth Breakdown. And for the Ontario-specific tax optimization strategies that apply to the RRSP and non-registered portions of this estate, our $2M Ontario Tax Implications guide covers the withdrawal ladder math in detail.

The Lifetime Capital Gains Exemption at $5M

The LCGE ($1,250,000 for 2026) is the single most valuable tax provision for business owners. It shelters gains on qualified small business corporation (QSBC) shares from capital gains tax entirely. At the 66.67% inclusion rate and a 53.53% top marginal rate, the LCGE saves approximately $354,000 in tax per individual.

For a couple who both hold QSBC shares (through proper share structure or a family trust with the 21-year rule managed), the combined exemption is $2.5M — sheltering $708,000 in tax. This is why business owners with $5M estates spend significant resources on “purification” — ensuring the corporation qualifies as a QSBC by removing passive investment assets that would disqualify it (the 90%/50% asset tests).

When to Use Each Structure: Decision Framework

For those building toward the $5M mark, understanding the earlier milestones helps frame the progression. Our $500K Net Worth Retirement Analysis and $250K Net Worth by Age 35 show how accumulation-phase decisions compound into the structural planning territory.

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