Wealth Management Services for Health Care Professionals
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Practical wealth management strategies for Health Care professionals looking to reduce taxes and maximize family estate using tax deferrals, income splitting, incorporation, insurance and Individual Pension Plans, among other strategies.
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Wealth Management Services for Health Care Professionals
- 1. WEALTH MANAGEMENT SYMPOSIUM SERIES Tax Planning for Health Care Professionals Susan Yao-Arkilander, CFP Investment Advisor and Financial Planner DELIVERING THE WEALTH MANAGEMENT EXPERIENCE
- 2. WEALTH MANAGEMENT NEEDS Client Needs Insurance Retirement Estate Plan Assist Parents Assist Children Income Protection Investments Wills Living Expenses Education Asset Protection RRSP Trusts Special Needs IPP / RCA Heirs Inheritance Charitable Giving Taxes Disability
- 3. Susan Yao-Arkilander’s Wealth Management Team Will & Estate Consultant Financial Planner Susan Yao-Arkilander Health Care Professionals Domestic and International Trust Services Tax Planning Support RBC Private Banking / Health Care Banking Insurance Specialist
- 7. Benefits of PC – Marginal Tax Rate Comparisons 28.4% 30.6% 24.4% 23.2% 29.7% 24.0% 23.8% 20.4% 16.0% 18.5% Eligible Dividends from PC (over $500,000) 36.4% 48.2% 30.9% 19.0% Quebec 35.6% 47.0% 33.5% 16.0% Newfoundland 33.1% 48.3% 35.5% 16.0% Nova Scotia 33.6% 47.4% 35.5% 14.5% PEI 35.4% 47.0% 32.5% 16.0% New Brunswick 31.3% 46.4% 33.5% 16.5% Ontario 38.2% 46.4% 33.0% 13.0% Manitoba 30.8% 44.0% 32.0% 15.5% Saskatchewan 26.5% 39.0% 29.5% 14.0% Alberta 31.6% 43.7% 31.5% 15.5 % BC Over $500,000 Up to $500,000 Ineligible Dividends from PC (under $500,000) Sole Proprietor Tax Rates Highest Marginal Tax Rate Professional Corporation Tax rates on taxable income Province
- 13. Income splitting with minors – $10,000 basic personal tax exemption If taxable to parent $20,000 x 50%= $10,000 Tax payable = $4,600 If taxable to child $20,000 x 50%= $10,000 Less basic exemption = ($10,000) Tax payable = $0 $20,000 Capital gains Investment Account
- 14. RBC Family Trust Structure Parent Smith Family Trust Beneficiaries loan or gift Tax-free Capital gains $ Trustee(s)
- 17. Insurance Needs Long Term Disability Long Term Care Income Protection Asset Protection Age 30 40 55 65 75 85 Critical Illness Life Insurance Retirement
- 19. Insurance as Another Asset Pool Fixed Income
- 21. Retirement Individual Pension Plans
- 23. Suitable Candidates Incorporated business owners Incorporated professionals Senior executives
- 25. Case Study 571,145 Incorporated since 1991 Earning maximum T4 income of $124,722 Contributed maximum to an RSP Age: 55 Year Age RRSP Transfer ($) Past Service Cost ($) Employer IPP Current Cost ($) Employer IPP + RRSP Total RSP Cont. ($) RSP Total 2010 55 367,950 203,195 31,154 648,605 22,000 418,356 2015 60 44,723 1,166,621 28,753 755,423 2020 65 61,256 2,008,245 37,579 1,286,850
Notes de l'éditeur
- Slide to emphasize_that we do much more for our clients than just manage their assets. Wealth management deals with a variety of life events, all of which have financial implications, good and bad, and our role is to help clients identify these events and develop strategies to take advantage of opportunities and avoid the pitfalls._____________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________
- IPP may approx double retirement savings one could otherwise accumulate in an RRSP All contributions and associated costs are tax deductible corporately , making the solution very tax effective and help small business owners stay in the small business tax bracket 100% creditor proof, a function of pension legislation; more secure than assets in an RRSP For family businesses only: in the event of death of the parent where a child is also is also employed by company, receiving T4 income and member of the IPP, there is potential for any plan surplus at time of death, to remain in the IPP tax free and begin to fund the current costs for the remaining participant (the child). Money contributed by one generation is thus passed on to another tax free. IPP costs can be used to strip cash out of the business in anticipation of the sale of the business or could be used by “buyer” to pay balance of sale over a negotiated period of time. Advantage for seller is, the ability to transition into retirement gradually and reduce capital gains taxes based on the reduced price (offset by tax sheltered contributions going into his/her IPP). Advantage for buyer ; Seller stays on to facilitate transition and deducts balance payment as a corporate expense.
- Business must be incorporated to establish an IPP; verify eligible dates of incorporation for professionals as these dates will vary from province to province and one profession to another. To date 95% of IPPs are set up for Business Owners. Incorporated professionals include: doctors, dentists, pharmacists, vetenarians, accountants. Little action with Senior Executives, as business owners and incorporated professionals prefer to focus on immediate family.
- Further to previous broad categories the IPP works best when the above criteria are also present. Income does not need to be max amount of $116,667; if less, benefit, cost & tax deduction are all adjusted accordingly. Any income over the max does not factor into the formula.
- Table shows the different accumulation potential in an IPP vs an RRSP (in blue) for the same individual age 55 in 2008. Age 55 shows total past service cost ( $474,442) part of which is offset by a transfer of RRSP assets ($305,400) into the IPP as required by CRA. In 2008 the plan sponsor can therefore contribute and write off $169,042 for past service plus $28,932 for current service (total $197,974). We fast forward 5 yrs to age 60 to show increase in current service cost, based on age and the fact that benefits are indexed and therefore increase each year. Accumulation in IPP at age 60 is $994,865 vs $640,395 in rrsp. At age 65 there is another opportunity (it’s optional) to contribute another large sum, $ 650,237, should the plan participant decide to defer retirement until age 71. This possibility stems from one of several “prescribed assumptions” set by CRA (see bottom of pg 6 in client illustration) that is that “retirement age is 65). Pension benefit payable at age 65 has been fully funded by contributions made to age 65, however, represents only 35% of actuarially adjusted benefit due at age 71. Issue is that the difference of payment due at age 71 could not be pre-funded because of the “retirement age 65 assumption” and therefore a certain amount of catch up is needed between 65 and 71.
- One of my most important tasks is to help define your investment goals. To improve the chance of success these goals need to be very well defined and measurable. Usually, investment goals can be quantified by dollars and time (ie. I need X dollars to fund my retirement, starting in the year 2010). This will lead us to understand what level of annual rate of return we will need to achieve to meet the $ goal. Of course, part of the equation is also accounting for the effect of taxes, fees and inflation. As you know…..the road to success in investing is never this smooth.