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The Kaminsky Family: Transferring their wealth tax-effectively

Dr. Ethan Kaminsky,* a physician, and his wife, Colleen Kaminsky, have been retired for more than 10 years.

Last year, the Kaminskys joined their friends at an event hosted by MD Signature Private Wealth Management, where they enjoyed an evening with colleagues at a top-rated restaurant.

Through conversations, they were introduced to MD Signature Private Wealth Management, a service offered to physicians who have built up significant assets and have more complex financial planning needs.

As MD Signature clients, the Kaminskys would 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 would 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.

The Kaminskys agreed to meet with the MD Signature Advisor and engage the MD Signature team to review their situation. To get an idea of how this service works in practice, let’s look at the Kaminskys’ situation.

Getting to know the family

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

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

Ethan, 77, is a retired cardiac surgeon in British Columbia who practised for more than 50 years, and Colleen, 73, is a retired pediatric nurse.

The Kaminskys have two children. Carrie, 50, lives in Saskatchewan with her husband and two children, Rebecca, 27, who is starting her career in medicine, and Madeline, 22, who is finishing university. Their son, Graham, 47, lives in British Columbia. He is divorced with two children, Gavin, 21, and Tessa, 19, both at university. Over the past five years, Graham has been in a common-law relationship with Denise, who has two teenage sons. 

Overall, the Kaminskys have a net worth of approximately $13 million, including the assets in Ethan’s corporation, of which Colleen is also a shareholder. They spend about $210,000 after tax annually.

Their children are financially secure and there are no concerns about paying for the grandchildren’s education. But with a sizeable estate, they want to figure out how to minimize taxes while transferring their wealth, manage the estate administration costs effectively, equalize their children’s inheritance, and ensure that their assets are passed to their blood-related family members only.

Exploring their values and vision

To help Ethan and Colleen prioritize their goals, their MD Signature Advisor asks them to complete an exercise to identify the values most important to them. Their top five values turn out to be: family, wealth, social service, 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 ensuring that the legacy they leave is maximized, and the taxes and estate administration costs are minimized.

Home: They love the home they live in and want to be able to stay there for as long as their health permits. They also enjoy their chalet, where they spend a lot of time with their children and grandchildren in the summer.

Lifestyle: They expect their general lifestyle expenses to cost $140,000 annually and want to set aside $30,000 a year for travelling and $20,000 for entertainment and membership expenses, especially for their fitness, which they want to maintain. Their two vehicles, plus a boat and personal watercraft, cost $20,000 a year to operate.

Legacy planning: They want to transfer their wealth in a tax-effective manner and to minimize the taxes and costs of estate administration. They also want to ensure that their assets are passed to the intended beneficiaries.

All these goals correlate strongly with their top five values.

Figuring out the financials

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

Time for the analysis

By analyzing how well Ethan and Colleen’s family details and financial situation match their vision for the future, the MD Signature Advisor and Financial Planner validate their top priority: ensuring their estate is managed in a tax-efficient and cost-effective manner, according to their wishes.  

Canadian tax rules generally stipulate that when you die, you are considered to have disposed of all your assets at their fair market value, but a good estate plan can help to reduce or defer the taxes an estate must pay. Having said that, there are complex laws for the taxation of each type of asset, and for each type of situation. Your MD Signature Advisor, MD Signature Financial Planner, team and external specialists will help you navigate them.

Here are the assets the Kaminskys own:

House: $2 million

This is owned jointly with right of survivorship by the Kaminskys and was bought for $1.5 million.

 

Chalet: $1.5 million

This is owned jointly with right of survivorship by the Kaminskys and bought for $800,000. They want to leave it to their son but equalize the inheritances between their children.

 

RRIFs: $850,000

$450,000 in Ethan’s account; the beneficiary is Colleen. $400,000 in Colleen’s account; the beneficiary is Ethan.

 

TFSAs: $200,000

$100,000 in Ethan’s account; the successor holder is Colleen; $100,000 in Colleen’s account; the successor holder is Ethan.

 

Non-registered investment assets: $5 million

This is owned jointly with right of survivorship by the Kaminskys, with unrealized capital gains of $800,000.     

 

Medical professional corporation shares: $3.5 million

This is in corporate investments accounts, with unrealized capital gains of $500,000. Both Ethan and Colleen are shareholders.

 

Insurance

Personally owned joint-last-to-die policy with a death benefit of $1 million and $100,000 in cash surrender value. The beneficiary is the estate.

Formulating a solution

MD Signature provides Ethan and Colleen with the robust expertise they need to arrive at solutions to satisfy their estate planning goals. Their MD Signature Advisor will seamlessly coordinate the right members of the entire MD Signature team and work with their external specialists to meet the Kaminskys’ financial needs.   

Their focus is to equalize their children’s inheritance while ensuring the assets will pass to their intended beneficiaries. They would like to maintain control of their assets during their lifetime and minimize the amount their estate will pay in taxes and administration costs at death.

Based on the analysis and discussion with the clients, the best way to provide equal inheritance to each of their children is by updating their wills with relevant clauses. They would also create testamentary trusts in their wills to help protect their children’s inheritance from any future spousal property claim.

They would include insurance trust clauses in their wills to have the insurance proceeds pass outside their wills (thereby avoiding probate fees) and direct the proceeds to their intended beneficiaries tax-free.

To reduce estate administration costs, they would create a joint partner trust and settle their non-registered investment assets in the trust. They would review their corporate structure and implement an estate freeze to have future growth of the corporation pass to their children, thereby minimizing estate taxes upon the second spouse’s death.

They also would utilize the services of MD Private Trust Company as corporate executor of their wills to minimize administrative burden and personal liability for their loved ones.

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

Implementation

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

With Ethan and Colleen’s consent, the team will also provide the recommended strategies to their taxation and legal advisors and work together to implement their plan. 

Monitoring

Discovering and addressing Ethan and Colleen’s highest priorities 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 Kaminskys can also refer their family members to MD to explore services that would be beneficial to them and to take advantage of family pricing.

More than providing a sound financial plan, MD Signature helps clients realize their vision during their lifetime and secure their legacy.

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.

Insurance products are distributed by MD Insurance Agency Limited. All MD employees dealing with clients regarding insurance products hold life licences.

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

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