An estate freeze trust can help them keep all of their eggs in the proverbial basket.

Chris Hondros/Getty Images

It's a story as old as theater itself. A cloud of doom descends upon a family farm. The landowner has just died, leaving behind all kinds of financial messiness. Enter the evil tax baron who swoops down on the unsuspecting relatives and demands payment of back taxes. Of course, the heirs are either unaware of their rights or unable to pay and, thus, forfeit the homestead that has been in their family for centuries.

Fortunately, life does not imitate art in every aspect. In the event of a death of a family member, or a senior owner of a family business or farm, an Estate Freeze Trust (EFT) can establish a plan for minimizing taxes and prevent surviving children from assuming an overwhelming tax burden. It also provides the family with a tangible what if contingency in the form of a succession plan. A succession plan is simply the continuation of a family business by the next generation of family members after the senior member dies or retires.

An Estate Freeze Trust is an integral part of an estate plan that helps minimize taxes on the future appreciation of certain assets. For example, if a family business holds a stock long-term and it appreciates even 6 percent each year, the tax liability to the surviving heirs could be astronomical.

Simply put, the reason for creating an Estate Freeze Trust is to shield tax liability (the amount of tax an individual or company owes) and keep family businesses in the family.

To find out how wills and trusts work with EFTs and how EFTs can reduce tax liability, check out the next page.