Full Transcript for Two Doctors, One Professional Corp: Fixing Salary, Dividends, RRSP and Retained Earnings

missing something? 00:02:48.560 --> 00:03:00.000 You know, like I've got assets, I've got money, I've got like this, I got too much money to know to know what to do with in a way, um, which means I don't have any worry about like my my my family expenses. 00:03:00.159 --> 00:03:01.840 Like we're not in that world. 00:03:02.080 --> 00:03:07.039 We've got these assets around us, but it's like, but what am I missing about those assets? 00:03:07.199 --> 00:03:10.400 And I don't wanna, I don't want to misstep down the line. 00:03:10.479 --> 00:03:16.080 And it's like, can you just have a look at what I'm doing and where I could be missing the boat? 00:03:16.159 --> 00:03:26.000 And what is some low-hanging fruit that I could I could make some maneuvers here so that 10 years from now, five years from now, I'm like, that was a great decision. 00:03:26.159 --> 00:03:26.319 Right. 00:03:26.479 --> 00:03:32.879 And I've either eliminated some tax that I was paying, or I've built up more wealth because of that small move. 00:03:33.039 --> 00:03:35.439 And that's what we do in our calls, to be honest. 00:03:35.599 --> 00:03:42.240 And so this person was like, I don't want regrets that I could have made earlier, but I don't know who does this. 00:03:42.319 --> 00:03:48.960 You know, like there's certain survisors that look for this, and there's like they all have like the, but no one looks holistically, and that's what we did here. 00:03:49.199 --> 00:03:50.080 Let's unpack it. 00:03:50.159 --> 00:03:58.319 We want to share these these big takeaways, this low-hanging fruit, specifically around missed opportunity for people who have assets. 00:03:58.560 --> 00:04:13.759 Well, and it's funny too, because the conversation, uh, John, at the at the very beginning, what they described what was their biggest, I'll call it wealth pebble with working with different advisors was it seems that every advisor sort of does one thing. 00:04:13.919 --> 00:04:15.520 And they do that thing well, right? 00:04:15.680 --> 00:04:32.800 Like they probably do that thing well, but they felt like it was like, unless they knew the entire plan going into that particular advisor's office or into that Zoom call with that advisor, they weren't sure if they were actually getting a real holistic view. 00:04:32.959 --> 00:04:34.800 So that's really what we try to do. 00:04:35.040 --> 00:04:41.839 And, you know, as we go through here, we've redrawn this scenario so that this scenario is unique. 00:04:42.000 --> 00:04:52.800 It's not actually the exact numbers and so forth and the exact details, but it addresses all of the same low-hanging fruit that we were talking about on that call. 00:04:52.959 --> 00:05:08.959 So, one of the biggest things that you're not going to get if you, you know, go into, let's say, the bank and you're talking about where should I invest or how should I invest, you know, one thing you'll probably get is the opportunity to invest in whatever it is that they are licensed or whatever they're paid to sell. 00:05:09.120 --> 00:05:12.800 So if it's at the bank, it might be the mutual funds offered by the bank. 00:05:12.879 --> 00:05:19.839 You might have to do some digging to get maybe some ETFs or to get some diversification outside of what the bank is offering. 00:05:20.000 --> 00:05:23.839 Or you go into the insurance office and you know, they they've got insurance. 00:05:23.920 --> 00:05:25.360 And what kind of insurance do you need? 00:05:25.439 --> 00:05:25.920 Is it term? 00:05:26.160 --> 00:05:26.800 Is it permanent? 00:05:26.959 --> 00:05:28.399 And they can help you do that. 00:05:28.560 --> 00:05:34.079 But what they'll often miss is when we're putting the wrong dollars into the wrong things. 00:05:34.319 --> 00:05:37.279 And in this particular case, we're gonna kind of paint you a picture. 00:05:37.360 --> 00:05:42.800 For those on YouTube, we're kind of drawing this out, but I'll do my best to describe it for everyone else. 00:05:43.040 --> 00:05:48.160 This Canadian couple, other younger couple, they are both incorporated professionals. 00:05:48.240 --> 00:05:52.160 They actually have MPCs because they are medical professionals. 00:05:52.399 --> 00:05:53.920 And they're doing quite well. 00:05:54.079 --> 00:05:57.839 So they both have their own professional corporations opened. 00:05:58.000 --> 00:06:02.319 And up on the screen now, you can sort of see the very beginnings of this drawing. 00:06:02.480 --> 00:06:05.759 We also have a holding company sort of sitting in the middle. 00:06:05.839 --> 00:06:17.120 And when I say in the middle, you know, we have to keep in mind that if it's a professional corporation, many professional corporations cannot be owned by anyone other than the incorporated professionals. 00:06:17.279 --> 00:06:21.360 So realtors with PRECs, for example, this is another example. 00:06:21.519 --> 00:06:25.360 So your PREC must be owned by the licensed uh realtor. 00:06:25.600 --> 00:06:27.839 The same's true here with these MPCs. 00:06:27.920 --> 00:06:31.680 So you'll see we've got sort of a side-by-side corporate structure. 00:06:31.839 --> 00:06:37.199 We have two operating companies and a holding company that sort of sits there in the middle. 00:06:37.519 --> 00:06:43.439 And ultimately at the end of the day, they've got a significant amount of income coming into the professional corps. 00:06:43.600 --> 00:06:50.959 We've got about, you know,$350,000 per year being retained in the first medical corp. 00:06:51.199 --> 00:06:59.759 And we've got uh we've got about four, about five, no, sorry,$200,000 per year in the other. 00:07:00.079 --> 00:07:09.040 So as we paint a little picture here, these two individuals have some retained earnings that have been growing along the way here. 00:07:09.199 --> 00:07:12.800 They've been paying themselves a reasonable salary right now. 00:07:12.879 --> 00:07:15.680 It's about$120,000 each. 00:07:16.000 --> 00:07:22.879 And they aren't

actually piercing beyond the$500,000 small business tax rate. 00:07:23.040 --> 00:07:26.399 So that's a really important thing for us to sort of consider here. 00:07:26.560 --> 00:07:32.480 So, all things equal, we look around and we say, you know, there's a really good thing going on here. 00:07:32.639 --> 00:07:37.439 Uh they do own a clinic, and that clinic is actually being leased. 00:07:37.519 --> 00:07:44.480 So they don't actually own the actual investment, but in that holding company, they do have a little bit of real estate investments. 00:07:44.639 --> 00:07:49.920 And their plan is to start growing a corporate wealth management strategy. 00:07:50.079 --> 00:07:54.079 So that's what we're gonna be discussing in this particular conversation. 00:07:54.399 --> 00:07:59.759 But as we move along, the big goal is what is this gonna look like over time? 00:07:59.920 --> 00:08:04.800 And it really comes down to us looking at all of the other assets that they have going on. 00:08:04.959 --> 00:08:28.720 So as we sort of zoom out here on this picture, we're gonna be talking about the different assets that they own personally, as well as the different assets that they own inside the corporation for us to start making some decisions as to whether, you know, it's steady Freddy, keep doing what we're doing, or are there little pieces, little nuances that we can adjust along the way here? 00:08:28.959 --> 00:08:42.000 Like what do you like like this is not you in a way, this is what you do every single day as you're on calls with business owners and trying to figure out where this, where the loop, you know, where their their low-hanging fruit is and their structures. 00:08:42.080 --> 00:08:49.440 And you get, you know, you get them to share some of the, you know, the the the the rough numbers, the the structures that they currently have. 00:08:49.600 --> 00:08:57.519 But if you think about these, these people and say others as well, is like, what is the first thing you're really looking for? 00:08:57.679 --> 00:09:01.679 It's like like because you unpacked kind of like the structure, but now it's like, where are you gonna dig? 00:09:01.759 --> 00:09:03.600 And where did you dig with these people first off? 00:09:03.840 --> 00:09:04.480 Yeah, that's great. 00:09:04.639 --> 00:09:10.320 And actually, where we typically look at is first we want to see like what's coming into the operating companies. 00:09:10.399 --> 00:09:16.399 And in this case, that's gonna be these professional corporations that we see here, and what's flowing out. 00:09:16.559 --> 00:09:29.440 So the first thing I want to identify is again, we've we sort of heard it is are we actually paying at the low corporate rate on all active income, or are there actual, is there actual income being paid at the high rate? 00:09:29.679 --> 00:09:34.399 So if they're in Ontario, these individuals may or may not be in it in Ontario. 00:09:34.480 --> 00:09:38.639 We we don't want to specify, we want

this to be anonymous for uh, you know, for anyone. 00:09:38.720 --> 00:09:42.639 We don't want anyone to be identified through some of what we're discussing here today. 00:09:42.799 --> 00:09:55.120 Um, but if they're in Ontario, you know, there's a massive difference between paying 12.2% on the first$500,000 and paying 26.5% on anything above$500,000. 00:09:55.279 --> 00:10:12.399 So as I had mentioned, they've been collecting retained earnings in the corporation, and they had told us that they're earning about$3,000,$350 of retained earnings per year in MPC one, and MPC two is earning an additional$200,000 in retained earnings. 00:10:12.480 --> 00:10:16.799 So that tells me right away that they are paying in the low tax rate. 00:10:17.039 --> 00:10:24.000 So that means that we want to be more strategic about how much money we take out to a personal level. 00:10:24.159 --> 00:10:32.799 When I see that they're taking$120 each out, the first question I want to ask the business owners are do you need that income? 00:10:32.960 --> 00:10:36.720 Like, is that what's needed or necessary for lifestyle? 00:10:36.879 --> 00:10:43.200 Because sometimes people just pick a number and they take that money out and they're like, actually, I don't really need that money. 00:10:43.440 --> 00:10:52.879 Well, in this case, if we could pay a lower tax rate, unless all of that extra money is going straight into an RRSP, we might want to reconsider that. 00:10:53.039 --> 00:11:01.600 But in this case, they have multiple children, three in total, and therefore lifestyle you know expenses are there. 00:11:01.759 --> 00:11:05.200 And they do need this$120,000 each. 00:11:05.440 --> 00:11:10.960 So there's really not any wiggle room there in order for them to say keep or retain more. 00:11:11.120 --> 00:11:20.799 And to be honest, with you know, a total of around, we'll call it combined,$500,000 of retained earnings each year, you know, as we plan out. 00:11:20.960 --> 00:11:37.440 If that's what we're projecting each and every year in the corporation, I might even suggest to them that they take a little extra out each year in order to create more RSP room so that they can actually fill up more of that bucket. 00:11:37.519 --> 00:11:46.879 Because again, in your corporation, there is no limit on how much you can retain in the corporation, but there is a limit on the RRSP. 00:11:47.039 --> 00:12:00.960 And over time, as they age and as they get a little older, we can even explore some tools like the IPP, which is an individual pension plan or a personal pension plan, both to be held within the corporate structure. 00:12:01.120 --> 00:12:30.879 So there's some moves that can be made, but I would argue until we, you know, run into some difficulty filling up the RRSP, especially when we're younger, then I would say we hold off on any IPP or PPP discussion at this point and we circle back to it in our late 40s, maybe as we get closer to 50, especially if there's still a nice long runway to be had in terms of, you know, earning income and taking a salary into the, you know, into their 60s and 70s. 00:12:31.200 --> 00:12:31.519 Okay. 00:12:32.000 --> 00:12:38.159 So they need the the you know, the salary that they're currently sending to themselves. 00:12:38.320 --> 00:12:49.440 They're creating RSP room from that salary, but I guess the the wonder here is, because I think what you're saying is like they could pay themselves a little more because there's room sitting in the retained earnings. 00:12:49.679 --> 00:13:07.519 And I think the you know, the threshold to like get yourself and salary up to be trying to get to the break-even point between the max R RSP room and how much your salary is, there is there is that kind of break-even point or the or the maximum kind of, I guess we can call it like inflection point. 00:13:07.600 --> 00:13:11.919 Uh in a way, there's there's that math term, you know, a math term coming out from your old calculus days. 00:13:12.000 --> 00:13:20.639 But I mean, when you think about that, like my wonder, I guess, for this group or this couple was like, was was there room there? 00:13:20.879 --> 00:13:24.720 And or did they already were they already contributing to the RRSP? 00:13:24.799 --> 00:13:42.720 Because that is one of those quick, you know, quick low-hanging fruit moves, is like, let's let's try to optimize the salary to start plugging the RRSP and maybe the tax-free savings account so that we can optimize that tax rate at the at the corporate level and into the personal level. 00:13:42.960 --> 00:13:43.120 Right. 00:13:43.200 --> 00:13:44.639 Yeah, and you're 100% correct. 00:13:44.720 --> 00:13:57.279 So when uh when we went and talked about their personal assets, we looked at about a combined$350,000 of total RRSPs and tax-free savings account. 00:13:57.519 --> 00:13:57.840 Okay. 00:13:58.000 --> 00:14:00.320 So when I look at that, I go, okay, that's good. 00:14:00.399 --> 00:14:02.240 So there's a healthy start here. 00:14:02.480 --> 00:14:18.320 However, like you had said, when we take$120 per year individually, we are essentially creating 18, uh, 18% for each individual, for each salary earner, more room in the RSP each and every year. 00:14:18.480 --> 00:14:58.399 And when we looked at the numbers and sort of back mapped, basically, while they could up their salary all the way to say 185 each in order to get the full 18% all the way up to the maximum of about$33,000,$34,000 of RSP room, that would leave such a big gap of unnecessary income at a personal level that I would much rather see it be somewhere in between, like taking an extra$20,000, maybe$25,000 each and then contributing all of it to the RSP, especially since they did have a little bit of RSP room uh from prior years that they hadn't used yet. 00:14:58.480 --> 00:15:01.519 So I would say the answer usually lies somewhere in the middle. 00:15:01.679 --> 00:15:14.960 The lower your spending, the less likely it is

that we're going to suggest pushing up the salary too aggressively just to create the RSP room, because then you're not going to be able to get all of that difference in. 00:15:15.039 --> 00:15:35.200 You know, if let's say I increase my salary by$50,000 in order to get, in their, in their case, we're we're talking about uh$50,000,$65,000 that they would have to each individually increase their salary, pay tax on, only to try to stuff$33,000 into the RSP. 00:15:35.279 --> 00:15:42.000 So we're losing on the other chunk of that salary, which is not really an ideal or an optimal move. 00:15:42.320 --> 00:15:49.360 So I'd much rather see them continue to use the RSP, but we're not going to really crank it up unnecessarily. 00:15:49.519 --> 00:15:52.559 But I do want to see it move up just a tad. 00:15:53.279 --> 00:15:55.519 Now you said they're young. 00:15:55.679 --> 00:16:16.240 So my wonder also is like the balance of going like we could just up the salaries to pad the R like to plug R RSPs, but like, is there anything else on the personal side before we kind of look into the corporate side that this couple needed to kind of consider that they hadn't been considering before? 00:16:16.399 --> 00:16:22.879 Because like that's like I said, that's the worry most teams are or people are coming to us from with going like, look at my situation. 00:16:23.039 --> 00:16:27.679 What am I missing out based off who I am, what do I do, my structures. 00:16:28.000 --> 00:16:30.960 What personally were they missing out on? 00:16:31.200 --> 00:16:32.480 Did you believe in this case? 00:16:32.720 --> 00:16:34.720 Yeah, well, I think there's a couple ones. 00:16:34.879 --> 00:16:36.399 So personally, they own a home. 00:16:36.480 --> 00:16:39.039 It's worth, you know, about 600,000 or so. 00:16:39.200 --> 00:16:41.679 They've owe about 370 on this home. 00:16:41.759 --> 00:16:45.360 So a decent amount of equity has been built up over time. 00:16:45.440 --> 00:16:47.600 Um, it's not fully paid off by any means. 00:16:47.759 --> 00:16:52.480 So again, I had mentioned, hey, listen, continue to pay it off slowly. 00:16:52.639 --> 00:16:54.480 We don't want to get too aggressive. 00:16:54.720 --> 00:16:57.759 We could, they mentioned the uh Smith maneuver as an option. 00:16:57.919 --> 00:17:17.039 The problem with Smith maneuver is that if I have to take more money out of my corporation in order to perform the Smith maneuver on my own home, my primary residence, I might end up paying more tax to get the money out than I'm actually gonna save in terms of the interest write-off that I'm gonna create in doing that arbitrage. 00:17:17.119 --> 00:17:18.799 So we just have to be careful there. 00:17:18.960 --> 00:17:20.079 We are gonna explore that. 00:17:20.160 --> 00:17:23.039 That's a lesser hanging fruit, in my opinion, in their case. 00:17:23.200 --> 00:17:31.440 But I did want to see them open up an optional home equity line of credit for a little bit of liquidity option, not to use for anything. 00:17:31.680 --> 00:18:08.640 One thing I did consider or I did mention to them that they could consider is that because they have, each of them has about half of the available room in their TFSAs, that could be a good strategy for them to fill up that tax-free savings account bucket faster and slowly pay down the HELOC or next time they refinance, they could wrap it into their mortgage so that we could actually fill up this really helpful bucket now, let it grow compound tax-free, and slowly drain from the corporation to pay down the money borrowed on the primary home. 00:18:08.960 --> 00:18:09.279 Got it. 00:18:09.440 --> 00:18:23.200 So you're specifically saying open up a home equity line of credit with the equity in their current primary, primary residence to borrow from the HELOC to send to the tax-free savings account, invest it. 00:18:23.279 --> 00:18:40.880 They're young, they've got a good, they've got a good long, long journey ahead of them to say, hey, we're we're okay with the long like if I I'm not gonna be like saying borrow from the tax-free savings or borrow to invest in the tax-free savings account for money I need next year or two years from now, we're talking retirement, use your tax-free savings account like a retirement account in that case. 00:18:41.039 --> 00:18:42.480 That's what you're saying specifically. 00:18:42.720 --> 00:18:44.160 Yeah, you're absolutely right, John. 00:18:44.240 --> 00:19:04.559 And the one thing I want to just remind people is if we're going to use a strategy, a lot of clients are a bit surprised when I say, hey, listen, if you have an opportunity to fill up the tax-free savings account bucket at refinance time, that to me is a really easy move to increase the amount I owe on my home, use that money, put it in the tax-free savings account. 00:19:04.640 --> 00:19:10.319 A lot of people are like, why wouldn't you do it on a home equity line of credit and write off the interest doing Smith maneuver? 00:19:10.640 --> 00:19:19.519 The problem is that these are registered accounts and registered accounts, we cannot write off the interest on a registered account on borrowed funds. 00:19:19.680 --> 00:19:22.240 So if it's refinance time, that's easier. 00:19:22.400 --> 00:19:27.519 But unfortunately, most people are in a term and they don't want to refinance in the middle of a term. 00:19:27.599 --> 00:19:31.599 So a HELOC can be a way to implement that strategy sooner. 00:19:31.759 --> 00:19:33.920 I wouldn't use the entire HELOC. 00:19:34.160 --> 00:19:37.599 If I have access to 100,000, I wouldn't put 100,000 there. 00:19:37.759 --> 00:19:38.160 Why? 00:19:38.400 --> 00:19:40.799 Because markets are volatile and things like that. 00:19:40.960 --> 00:19:50.960 We don't want to get ourselves caught in a pinch if the HELOC is going to be a useful wealth reservoir tool as we're building our work, our net worth as we go. 00:19:51.279 --> 00:19:51.839 Got it. 00:19:52.000 -->

00:19:52.400 Got it. 00:19:52.559 --> 00:19:52.880 Okay. 00:19:53.359 --> 00:19:57.279 So do we want to talk about they like you said, they were young. 00:19:57.440 --> 00:20:04.319 Um, do we want to talk about say RESPs and kids and and and like because some people are like, I already got that set up. 00:20:04.559 --> 00:20:07.359 So when you see that, sometimes you're like, oh, that was a missing bucket. 00:20:07.680 --> 00:20:15.279 It is such an easy bucket to miss because when we do our net worth statements with clients, like typically we ignore what's in the RESP. 00:20:15.440 --> 00:20:15.759 Why? 00:20:15.920 --> 00:20:18.480 Because we know that there's a plan for it, right? 00:20:18.559 --> 00:20:20.960 It's going to go to education purposes. 00:20:21.039 --> 00:20:27.119 So we don't necessarily want to factor it in to any sort of wealth planning and so forth, but it is an important move. 00:20:27.279 --> 00:20:30.079 And with these individuals, we had three children. 00:20:30.240 --> 00:20:34.480 Each of them has a universal uh life policy on them. 00:20:34.640 --> 00:20:36.640 We're not huge fans of universal life. 00:20:36.720 --> 00:20:38.960 We figure if you're going to be in the market, be in the market. 00:20:39.119 --> 00:20:45.920 If you're going to be in insurance, be in insurance, like something more guaranteed, more predictable, like a whole life, high early cash value. 00:20:46.079 --> 00:20:49.039 However, they've already set up universal life policies. 00:20:49.119 --> 00:20:52.000 They're small on their children, not the end of the world. 00:20:52.160 --> 00:20:55.599 It's not going to, you know, um, you know, throw them off track. 00:20:55.680 --> 00:20:58.079 You know, we're not, we're not disappointed in them. 00:20:58.400 --> 00:21:10.880 But we probably, when I found out that they hadn't been using the RESPs yet, in my mind, that should be happening well before we consider doing any sort of insurance strategy on our children. 00:21:11.039 --> 00:21:21.359 Um, the reality is that that insurance, even though over time you get all the benefits of insurance, again, not huge fans of the UL for the insurance strategy. 00:21:21.599 --> 00:21:30.960 I think that's like one of the last moves that we're gonna make because we want to make sure that we have enough insurances in our corporation for ourselves instead of for our children. 00:21:31.119 --> 00:21:39.359 So basically, what we're doing is we're putting something on our children that's actually gonna help probably their children, which is like a really long time from now. 00:21:39.519 --> 00:21:46.000 Now, there is cash value, we can leverage, there is some advantages, but like we're not a huge fan of starting there. 00:21:46.240 --> 00:21:48.720 They're leaving such an easy, low hanging fruit. 00:21:48.880 --> 00:21:55.920 They've got three children, they get$500 per year free if they put in$2,500 per year. 00:21:56.079 --> 00:21:59.839 So it's not a massive amount of

money when we look at the entire pitch. 00:22:00.319 --> 00:22:00.559 Here. 00:22:00.640 --> 00:22:04.480 However, this might also justify those salaries going up a little more. 00:22:04.960 --> 00:22:06.880 We put money in the RSP first. 00:22:07.039 --> 00:22:22.720 We take any RRSP refunds and we plan to use those refunds to help fill up the RESPs and the tax-free savings account bucket so that we can utilize these are gifts that the government is essentially giving us. 00:22:22.799 --> 00:22:27.359 We don't want to ignore them, even though$500 might not seem like a ton. 00:22:27.440 --> 00:22:31.279 It's$1,500 per year for three children. 00:22:31.440 --> 00:22:39.039 And that does compound, you know, up to, I think it's around age 14 when you'll max out on that opportunity. 00:22:39.119 --> 00:22:40.480 And you can do catch-ups. 00:22:40.640 --> 00:22:42.720 So catching up is really important as well. 00:22:42.799 --> 00:22:45.519 So easy, low-hanging fruit for these individuals. 00:22:45.839 --> 00:22:49.359 Okay, let's turn our attention into what you said earlier, the middle. 00:22:49.599 --> 00:22:52.079 So let's let's look at the corporate side of things. 00:22:52.240 --> 00:23:04.160 And when we have significant retained earnings, we often want to know, I don't want to miss the boat or or regret something down the road that I could have been doing with these retained earnings now because they're my retirement. 00:23:04.240 --> 00:23:05.440 They're, I'm building this up. 00:23:05.519 --> 00:23:08.079 I don't need the money to live now, but I should be investing it. 00:23:08.160 --> 00:23:09.039 I should be putting it here. 00:23:09.200 --> 00:23:11.759 I should be buying income-producing assets. 00:23:11.839 --> 00:23:18.079 Um, what did you see with what they were doing with their corporate investments? 00:23:18.240 --> 00:23:23.920 And then what did it where did you see some of that low-hanging fruit in that in that arena? 00:23:24.160 --> 00:23:24.960 Yeah, absolutely. 00:23:25.119 --> 00:23:27.839 So we usually start inside the corporate structure. 00:23:28.000 --> 00:23:35.680 We usually start our conversation around some sort of mix between growth and safety of around 50-50. 00:23:35.759 --> 00:23:43.039 And the reason why we start there with incorporated business owners is because liquidity is usually a big issue for a lot of people. 00:23:43.200 --> 00:23:48.000 Now, the younger we are, and I would say the more predictable the income is. 00:23:48.160 --> 00:23:52.000 So as medical professionals, we might not need to be 50-50. 00:23:52.160 --> 00:23:59.279 It might be more suitable to move, you know, from like 70-30, for example, in the, you know, in these individuals' cases. 00:23:59.440 --> 00:24:05.359 But even with medical professionals, what I find is that there's way too much cash sitting doing nothing. 00:24:05.519 --> 00:24:08.960 So that 50-50 starting point can be a really helpful place. 00:24:09.119 --> 00:24:25.680 Now, what I was pleased to find is that even though I'm not a huge fan of maybe the kid UL policy, specifically the type of policy and the fact that they were on the kids before doing RESPs, what I did like was that they were held and owned inside of the corporate structure. 00:24:25.839 --> 00:24:29.440 Now, they are in the MPCs instead of in the holding company. 00:24:29.599 --> 00:24:31.279 I'd rather see them in the holding company. 00:24:31.440 --> 00:24:35.039 We can, you know, move them over the ownership over to the holding company. 00:24:35.119 --> 00:24:36.880 It's not the end of the world there. 00:24:37.119 --> 00:24:44.480 However, um, I was happy that at least they were using the low tax rate after tax dollars in the corporation. 00:24:44.559 --> 00:24:57.119 So they were spending 88 cent dollars on these policies instead of personal dollars, which may have been more like 70 cent dollars or you know, 20 uh or 73 cent dollars, depending on their tax rate. 00:24:57.279 --> 00:24:58.640 So big win there. 00:24:58.799 --> 00:24:59.440 That was great. 00:24:59.599 --> 00:25:11.119 And I was also pleased to see that they had already set up high early cash value uh life insurance policies in the corporation as well, owned by the NPCs, not the holding company. 00:25:11.279 --> 00:25:12.160 Easy move. 00:25:12.400 --> 00:25:25.359 And that$50,000 of premium per year, if we do some quick math, that's$100,000 per year going in versus another$400,000 of retained earnings that are there. 00:25:25.519 --> 00:25:30.799 So right now their split could be an$80,000, 20% when we do the math. 00:25:30.960 --> 00:25:36.640 $500,000 of retained,$100,000 of those is going into this safe bucket. 00:25:36.880 --> 00:25:41.680 But the reality is that they've got a lot more cash on the sidelines doing nothing. 00:25:41.920 --> 00:25:44.240 So one of two things either has to give. 00:25:44.480 --> 00:25:55.359 Either we need to actually invest them, if that's the goal, get them invested long term, or we need to maybe consider actually adding a little bit in terms of new policies. 00:25:55.519 --> 00:25:56.880 We're not canceling policies. 00:25:57.039 --> 00:25:59.519 You might consider adding an additional policy. 00:25:59.680 --> 00:26:09.039 Maybe it's a joint first to die policy or maybe a joint last to die policy, depending on what needs they would like to achieve with those policies. 00:26:09.200 --> 00:26:12.000 So I'm actually really happy about that structure. 00:26:12.079 --> 00:26:15.839 But then when we looked at the growth bucket, remember, too much cash sitting. 00:26:16.000 --> 00:26:22.160 We've got about, you know, one point, I want to say it was 1.1,$1.2 million there. 00:26:22.559 --> 00:26:26.400 And only about half of that was invested in the corporation. 00:26:26.559 --> 00:26:28.240 The other half was sitting in cash. 00:26:28.400 --> 00:26:32.000 Not a good cash, just cash, not even in GICs. 00:26:32.559 --> 00:26:47.920 But their

challenge has been that so far, all of their investments, their RSP at a personal level, tax-free savings account, and their corporate accounts, they are now working with an advisor that is only mutually mutual fund licensed. 00:26:48.000 --> 00:26:54.000 And those mutual funds have high fees, and they're really just index type mutual funds. 00:26:54.079 --> 00:27:03.839 So essentially what they're doing is they're paying a significant fee, more so than what our wealth management team would charge to manage funds and be active managers of those funds. 00:27:04.160 --> 00:27:08.319 And they're, you know, essentially just getting sort of an indexing strategy. 00:27:08.559 --> 00:27:16.079 So that's a massive, you know, to me, big red, you know, flashing light is like one of two things either has to happen. 00:27:16.160 --> 00:27:20.160 In my opinion, you either want a DIY and you want to go index funds. 00:27:20.400 --> 00:27:26.400 Uh, I'm not a fan of paying a management fee if the strategy is just indexing. 00:27:27.039 --> 00:27:45.039 Or if you want something more, if you want access to an alternative asset class, if you want access to private equity as a part of this portfolio, and if you want access to an insurance strategy in case the market crashes, this is where true wealth management really shines. 00:27:45.359 --> 00:27:52.880 So you could be looking at for us, it's gonna be 1.5% assets uh uh fee for assets under management. 00:27:53.119 --> 00:28:10.720 This is an easy shift where they're actually gonna save fees and get a more actively managed portfolio that introduces other assets so that we actually don't have to hang around in just the S P 500 index fund, uh a bond fund or whatever it might be. 00:28:10.799 --> 00:28:19.680 This is actually gonna be actively managed to try to get a higher risk adjusted return while protecting downside to protect the pile. 00:28:19.839 --> 00:28:26.079 And really, that really lit them up that they were like, wow, you've considered the entire picture here. 00:28:26.559 --> 00:28:31.119 And that to them is like the lowest, easiest hanging fruit to start with. 00:28:31.279 --> 00:28:36.079 I corrected them and said, getting your RESPs filled, that's the easiest one. 00:28:36.160 --> 00:28:38.160 Like you could literally do it today, right? 00:28:38.319 --> 00:28:49.440 And you could do that, you could self-manage it if you want to through your bank, or if you'd like, say, our wealth management arm to manage it, we also can manage those funds, you know, through all of these different accounts. 00:28:49.599 --> 00:28:51.920 So that's the next step for this crew. 00:28:52.000 --> 00:28:59.200 But overall, when I back up and I look at it, I always like to remind people that they're doing great, they're not overspending. 00:28:59.440 --> 00:29:02.480 The reality is volume and they have volume. 00:29:02.640 --> 00:29:05.359 You see the retained units every year accumulating. 00:29:05.599 --> 00:29:08.799 Now

the question is how optimized do we want to become? 00:29:08.960 --> 00:29:20.079 And everyone's gonna land somewhere differently on that sort of spectrum between simplicity and complexity and optimization and you know, inefficiency, let's say, right? 00:29:20.240 --> 00:29:22.640 So we want to make sure that it fits for them. 00:29:22.799 --> 00:29:28.960 They're busy, they don't want to manage, they are, you know, incorporated business owners as medical doctors. 00:29:29.200 --> 00:29:46.160 And the next step is, you know, we're gonna have a call with our wealth management arm so that they can actually start pursuing some, you know, we'll call it better use of that capital because they've been hesitating to put more money into mutual funds because they know it's not where they want to be. 00:29:46.480 --> 00:29:47.039 Right, right. 00:29:47.200 --> 00:29:58.880 And then basically, especially if you're saying, look, we we like the idea that we're being actively managed, but we're saying, look, we're gonna, you know, the next your low-hanging fruit here is continue with that. 00:29:59.039 --> 00:30:03.839 You're just gonna put more money in your pocket just because you're eliminating some of the fees. 00:30:04.079 --> 00:30:15.279 And and you're going to get a better strategy overall, even though it's actively managed, because they're saying it's actively managed, but like you're saying, it's it's not really the strategy that they're using is something you could be doing as a do-it-yourselfer. 00:30:15.440 --> 00:30:33.440 But if I'm a if I don't feel comfortable as a do-it-yourselfer, I well, I like the I like the peace of mind that there is an active manager, and that's kind of what you buy when you are with, say, a mutual fund advisor who's just using uh kind of an index strategy is like you're just you're saying. 00:30:34.000 --> 00:30:38.160 They're just rebalancing for you their whatever, and you know, you're paying a cost for it. 00:30:38.240 --> 00:30:48.400 And at the end of the day, too, I usually encourage clients, I say, listen, if you've got that itch, like you're like, I know that the cheapest fees is me self-managing my own portfolio. 00:30:48.559 --> 00:30:53.839 I always say, like, well, start with something that you feel comfortable so that you can make some mistakes along the way. 00:30:54.000 --> 00:30:55.039 You're gonna make mistakes. 00:30:55.119 --> 00:30:57.839 So you don't have to go all actively managed, right? 00:30:57.920 --> 00:31:02.160 Like it could be half the portfolio is actively managed and half the portfolio you're doing. 00:31:02.240 --> 00:31:04.960 And over time, maybe you take the entire portfolio. 00:31:05.200 --> 00:31:11.200 The opposite's also true, and I think is really important to know is you might start managing this yourself. 00:31:11.279 --> 00:31:26.240 And after you make enough bonehead moves, like I've done in my past, maybe you start recognizing like this isn't really like where my strengths

lie, especially as an incorporated business owner, or if you're a T4 employee earning a high salary, it's likely that you're busy. 00:31:26.319 --> 00:31:33.680 And if you can't spend more than 15 minutes a day looking at it, you've got to start questioning like, is this worth it? 00:31:33.920 --> 00:31:36.480 And I always come back to the property manager situation. 00:31:36.640 --> 00:31:40.000 We pay property management to do things that we know how to do. 00:31:40.240 --> 00:31:44.000 We just don't want to do them, you know, and and it doesn't make it right or wrong. 00:31:44.240 --> 00:31:51.920 So be very, I guess, open in your mind to like what kind of investor are you and which kind of investor do you want to be? 00:31:52.000 --> 00:31:54.240 And you can always change that. 00:31:54.400 --> 00:31:58.000 You know, once you decide, you don't, you're not stuck there forever. 00:31:58.240 --> 00:32:00.640 So doing something is better than doing nothing. 00:32:00.720 --> 00:32:14.640 And I'm I'm just so happy that this couple did reach out because they recognized they had too much cash sitting on the sideline and they weren't taking the next step because they knew that what the next step was available to them right now was not the right one. 00:32:14.880 --> 00:32:16.400 So they went and solved it. 00:32:16.480 --> 00:32:18.960 They reached out to us and they got a full overview. 00:32:19.200 --> 00:32:19.359 Right. 00:32:19.519 --> 00:32:19.680 Yeah. 00:32:19.920 --> 00:32:25.440 Big takeaways here for them is thinking about like, let's first looked at our optimizing our salary. 00:32:25.599 --> 00:32:30.880 We looked at optimizing whether we're contributing enough to the RRSP or tax-free savings account. 00:32:31.039 --> 00:32:50.799 We can play around with some of the numbers because you have the flexibility if you're paying yourself from your corporation to take advantage of some of those break-even points, uh, to make sure that you're your tax optimized between corporate and personal, and get those registered accounts built up so that uh you can take advantage down the line. 00:32:51.039 --> 00:32:58.000 Another recommendation, big move for them was to think about those RESPs and how we're how are we funding those. 00:32:58.160 --> 00:33:07.279 We talked about HELOCs and looking at the HELOC situation to go, can we set up some flexibility for ourselves to also layer into the tax-free savings again on the personal side? 00:33:07.519 --> 00:33:14.799 On the corporate side, they were using uh say uh not as an optimal strategy in terms of corporately investing. 00:33:14.960 --> 00:33:28.319 Keep in mind that anytime you're investing inside the corporation and it is considered a passive source of an investment, you are going to pay 50% on the passive, any sort of passive income you generate inside the corporation. 00:33:28.480 --> 00:33:35.680 Um, there are capital gains to consider, but we recommend, you know, taking some sort of investment approach inside that corporation. 00:33:35.759 --> 00:33:43.839 A 50-50 percentage allocation between growth and safety is uh one of our biggest recommendations. 00:33:44.000 --> 00:33:50.640 Uh they were saying, look, I've got my 50% growth over here, so that was great, but we were there's the low-hanging fruit. 00:33:50.720 --> 00:33:58.720 We could have been optimizing in terms of the choices we are making in terms of who who is managing or how we're managing that side of the portfolio. 00:33:58.960 --> 00:34:06.799 On the, we didn't specifically get into what they were doing uh specifically for their safety side of that portfolio. 00:34:06.960 --> 00:34:08.960 I think what we heard was they were in cash. 00:34:09.119 --> 00:34:22.800 We in the past we have recommended that GIC-like returns can be used in a whole life or a high high cash value participating whole life policy that can act as a safety, uh safety growth portion of that portfolio. 00:34:22.960 --> 00:34:26.159 So those are some options we didn't specifically talk about here. 00:34:26.480 --> 00:34:30.159 We did talk about recommending that down the line for them as well. 00:34:30.400 --> 00:34:31.760 Hopefully, you got some takeaways. 00:34:31.840 --> 00:34:33.280 That's what we do on our call. 00:34:33.440 --> 00:34:36.880 So you may have heard, or if you listen to the podcast, we say, hey, book a call with us. 00:34:37.039 --> 00:34:45.039 That's what we're doing in 45 minutes on our call, is unpacking the situation that you currently have because a lot of these people that we talk with have good money. 00:34:45.119 --> 00:34:46.960 They got assets all over the place. 00:34:47.119 --> 00:34:54.320 But they have this nagging feeling that they're leaving money on the table somewhere and they're carrying blind spots around with them. 00:34:54.400 --> 00:35:22.960 And then what we try to do on that 45-minute call is to unpack where are those blind spots and let's call to attention the blind spots so that you can walk away with that 45-minute call no matter what, making moves down the line, whether whether you're using our services in terms of insurance or private equity or wealth side, wealth management side, you still can walk away and feel good about that call, going, I know what I could do next to save either money or save tax or build my wealth. 00:35:23.119 --> 00:35:29.760 That's what we're trying to do for all of the people that we're talking about, all of the community that's listening to the podcast or watching over on YouTube. 00:35:30.079 --> 00:35:38.559 So if you would like us to take a look uh at your situation, just like we took a look at this person's situation, you can book a call with us. 00:35:38.639 --> 00:35:40.320 Uh, there's links in the description below. 00:35:40.480 --> 00:35:42.079 Click that link to book a call with us. 00:35:42.159 --> 00:35:44.559 We can only uh meet with so many people. 00:35:44.719 --> 00:35:49.519 We work with uh a lot, uh a lot of high net worth individuals here in Canada. 00:35:49.599 --> 00:35:51.280 Uh so we only have so much time. 00:35:51.360 --> 00:35:56.880 So there's a few questions in that link to uh decide, you know, decide if you're the right fit for us to help you. 00:35:56.960 --> 00:36:04.960 So uh go ahead, click that link below in the description to book a call with us, and we can be unpacking your situation so that you're not wondering if you've got some blind spots. 00:36:05.119 --> 00:36:12.320 Um, we have some other goodies down there in the links below, specifically about a masterclass for corporate investing or corporate cash flow and optimizing that. 00:36:12.400 --> 00:36:20.880 We also have some uh links around pathways and optimizing uh the four big areas of wealth, uh, a wealth, health, healthy wealth plan. 00:36:21.119 --> 00:36:22.320 Um thanks again for listening. 00:36:22.480 --> 00:36:23.360 We'll talk soon. 00:36:41.280 --> 00:36:44.239 Just as a reminder, the content you heard here today is for financial purposes only. 00:36:44.320 --> 00:36:47.199 You should not construe this information as legal tax investment or financial advice. 00:36:47.280 --> 00:36:54.719 And Kyle Pierce is a licensed life and accident sickness insurance agent and the president of corporate wealth management here at Wealth here at Canadian Wealth Secrets.