Ullal’s children’s trusts, Canadian version: the estate freeze

The reason Ullal’s $118m of selling tells you nothing about her view of Arista is that the shares were not hers to have a view about — roughly 25 million of them sit in trusts for her children and relatives, and her own line is 9,917 shares. That wealth left her estate years ago, while it was worth less.

The Canadian instrument is the estate freeze: exchange your common shares for fixed-value preferred shares that lock in today’s valuation, and issue new common to a family trust so all future growth accrues there. On a later sale, the gain in the trust can be allocated to multiple beneficiaries and sheltered against each of their lifetime capital gains exemptions, which is the structural reason founders do this early rather than late.

Three things bite in Ontario and all three need an accountant before anything is signed: TOSI restricts which family members can receive dividends at ordinary rates; the 21-year deemed disposition forces a decision before the trust turns 21; and attribution rules apply to a spouse and to minor children. The freeze is also irreversible in practice at the value you freeze at — which is the second reason step one is the valuation.