The Moldenhauer Family: Optimizing taxes and protecting their wealth

Physician Dr. Isaac Moldenhauer* and his wife, Laurie Moldenhauer, are long-time clients at MD Financial Management who have just retired.

The Moldenhauers were recently invited to join MD Signature Private Wealth Management, a service for physicians who have built up significant assets and have more complex financial planning needs.

As MD Signature clients, the Moldenhauers receive an elevated level of personalized advice and comprehensive service — one that’s coordinated through their dedicated MD Signature Advisor and designed to simplify their financial affairs. They also enjoy access to private events, tiered pricing, curated content, and more, as part of their unique MD Signature experience.

The MD Signature Advisor applies the expertise of an MD Signature Financial Planner and the MD Signature Private Wealth Strategy Team — composed of MD Financial Management professionals with extensive proficiency in estate and trust, insurance, medical professional corporations and tax.

To get an idea of how this service works in practice, let’s look at the Moldenhauers’ situation.

Getting to know the family

The Moldenhauers’ main point of contact is their MD Signature Advisor, who works closely with the family’s MD Signature Client Associate and MD Signature Financial Planner.

During the discovery phase, the team gets to know the family.

Isaac, 65, is a retired thoracic surgeon in Ontario, and Laurie, 64, is a retired pharmacist. The Moldenhauers have a 38-year-old daughter, Danielle, and a 35-year-old son, Trevor.

Isaac worked as a surgeon for 33 years. He first incorporated his medical practice in Alberta and  converted it when they moved to Ontario.

Danielle and Trevor are both married; each have two children. Their careers and marriages have taken them to different parts of the country — Danielle is a family physician in Halifax, while Trevor is a management consultant in Calgary. It means lots of flights across the country for Isaac and Laurie.

Over the years, Isaac and Laurie have prospered financially from both diligent saving and some careful and well-timed investments into the real estate market.

Overall, Isaac and Laurie's net worth is about $8 million, including the assets in Isaac’s corporation and the corporation’s property. Laurie and the children are all shareholders in the corporation.

Though Isaac and Laurie have worked hard throughout their lives and built up a comfortable nest egg, like many people with demanding careers, they’ve put some dreams on hold.

One of these dreams is to buy a vacation property. But they’re not sure how to go about it without selling other assets that could trigger large capital gains and resulting taxes.

Exploring their values and vision

To help Isaac and Laurie prioritize what they want in life, their MD Signature Advisor asks them during the discovery meeting to complete an exercise where they systematically identify the values most important to them. Their top five values turn out to be: family, adventure, enjoyment, health and independence.

Their MD Signature Advisor and MD Signature Financial Planner then explore these values with them and ask how they envision their future, with specific emphasis on their home, lifestyle and family.

Home: They love the home they live in and, in the next six months, would like to buy a cottage they can enjoy with their family — without borrowing funds to pay for it.

Lifestyle: They would like to have $8,000/month for general lifestyle expenses. They want to donate $20,000/year to charity, spend $10,000/year for an annual family event, and spend $60,000 every five years to replace one of their vehicles.  

Family: They typically fly out to visit their children and grandchildren a few times a year. While this has been a  challenge  during the pandemic, going forward they want to support an annual family gathering (return flights for eight!).

All these goals correlate strongly with their top five values, but there is one more challenge. They want to know how to achieve this combination of goals as tax effectively as possible.

Figuring out the financials

After exploring their vision, the MD Signature Advisor and MD Signature Financial Planner then thoroughly examine their financial situation. This involves looking at corporate financials, tax returns, investments, tax-free savings accounts (TFSAs), registered retirement savings plans (RRSPs), pensions and insurance, among other things.

Time for the analysis

By analyzing how well Isaac and Laurie’s family details and financial situation match up with their vision for the future, the MD Signature Advisor and MD Signature Financial Planner are then able to confirm the biggest priority for their financial plan: tax optimization.

With assets of about $8 million, it may seem easy for Isaac and Laurie to meet their goals, but there are some constraints.

At this point, the MD Signature Advisor and MD Signature Financial Planner identify strategies and coordinate analysis to develop sound recommendations.

Formulating a solution

MD Signature provides Isaac and Laurie with the robust expertise they need to arrive at solutions to their tax issues. Their MD Signature Advisor will seamlessly coordinate the right members of their entire MD Signature team and work with their trusted specialists to meet their unique financial needs.   

Their top priority is to get through the year as tax efficiently as possible. Isaac and Laurie will need to sell the real estate holding of the practice, buy a vacation property personally and draw from their portfolios to maintain their lifestyle in retirement.

Based on the analysis, the best way to pay for the vacation property would be to consolidate the corporate portfolios and sell the corporate real estate property. This will allow them to withdraw one-third of the funds from the corporation through tax-free capital dividends, use the emergency funds for the cottage purchase and draw the remainder as eligible and regular dividends for both Isaac and Laurie. Because Isaac is 65, he is not constrained by the income-sprinkling rules, so his corporation can pay dividends to Laurie without triggering tax penalties.

They will use their emergency funds toward the purchase of the cottage, but they will still have their TFSA accounts, should an unexpected expense arise. They could consider putting a home equity line of credit in place for further protection.

The full recommendation would include many other details about their financial and asset management, retirement planning, risk management, tax planning, and estate planning, which would be presented to them as a comprehensive, personalized MD Signature financial plan.

Implementation

The best recommendations are ineffective if they aren’t implemented well. In Isaac and Laurie’s case, the couple will have the MD Signature Advisory Team, comprising the MD Signature Advisor and Client Associate, to coordinate and prioritize the strategies implemented. 

With Isaac and Laurie’s consent, the team will also provide the suggested strategies to their external taxation and legal advisors and work together to optimize the Moldenhauers’ taxes. 

Monitoring

Discovering and addressing Isaac and Laurie’s current highest priority is only one step in an ongoing process. Given the complexity of their situation, and that of families like theirs, MD Signature Private Wealth Management is designed to simplify their financial affairs through an elevated level of personalized advice and support.

Through regular meetings and contact, the MD Signature Advisor will be aware of any major life event that could have a significant impact on their financial plan and will review their plan on a timely basis. The Moldenhauers can also refer their family members to MD to explore services that would be beneficial to them and take advantage of family pricing.

More than providing a sound financial plan, MD Signature helps clients unleash their life’s potential and realize their dreams.

To learn more about MD Signature Private Wealth Management, contact an MD Advisor**.

* This hypothetical case study is for illustrative purposes only and does not represent actual clients. Any resemblance to actual people or situations is purely coincidental.

** MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.

All insurance products are sold through Scotia Wealth Insurance Services Inc., an insurance agency and subsidiary of Scotia Capital Inc., a member of the Scotiabank group of companies. When discussing life insurance products, advisors are acting as Insurance Advisors (Financial Security Advisors in Quebec) representing Scotia Wealth Insurance Services Inc.  

Estate and trust services are offered through MD Private Trust Company.

MD Signature Private Wealth Management is a private wealth planning service delivered by and a trade name of MD Management Limited and MD Financial Management Inc.

The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice, nor is it intended to replace the advice of independent tax, accounting or legal professionals.