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Session #1: Strategic Giving Virtual Workshop with Bobby Kleinman – Knowing the Donor

Strategic Giving Workshop

Knowing The Donor

This Forum contains the sole opinions & insights of the author based on forty years of providing advice to donors and charities. Others may totally disagree with the author’s views. This Forum is intended as a conversation. Robust debate is invited. Please respond with questions and alternative viewpoints to askbobby@peartreecanada.com

There appears to have been considerable angst created by my suggestion that the ‘Devs’ (my made up name of a company founder whose shares are being donated) of the world may ask you to hold onto their gifts of shares, rather than liquidating them immediately. So, I will try to combine the angst into a few statements and answer accordingly. Also, one said I went through Dev too quickly and could I explain it again.

So I will deal with the other questions and then get back to Dev.

 Your Questions Answered

Question. I appreciate the concept of providing general strategic planning info to donors. But will these donors see that we are doing this to get gifts for us? That we are not just trying to help them?

You are right, they will see it that way. That is ok, it is a good thing. In essence you are creating a 2-way street. It is not all about the charity. But one of the directions of the street is the charity. If the prospect takes the advice and uses it in funding  another charity and not yours- not what your intentions were, you were not going to succeed anyway. You have still made a friend, created a relationship and you are closer to succeeding next time with the prospect.

Question. How do donors who have foundations fit in? (or donor-advised funds- DAFs)

If you are asking about getting a donation / grant from a foundation the you need to know how big is the Foundation? Does it dwarf the ask? Or is the ask big for the Foundation? Or in other words will the donor have to add to the foundation to finance your gift.

During the seminar there was a question about how to deal with a wealthy farmer. And I responded, like any business person – and my experience with one who had a foundation necessitated some additional strategic planning. The foundation could fund a very nice gift, but to do a spectacular gift he didn’t have enough in the foundation. So, the gift will be paid over a number of years with the first payment effectively emptying the foundation, and the rest payable over many years with gifts of preferred shares of their Holdco. All to be tax-effective currently but also to remove assets which will be taxed at death (like we discussed with our 89-year old widow).

So unless we know the size of the foundation (which is public information) relative to our ask, we might or might not educate strategic giving (but it never hurts to educate).

But know that Private Foundations are limited in at least 2 ways. First, they cannot hold more than 20% of any share class of a company. Second, they cannot issue receipts for gifts of private company shares unless the shares are monetized.  So more and more private foundations are using public charities to do their gift planning. We will explore this in Seminar 3.

Question. When would we call on our own lawyers and accountants when facilitating complicated gifts?

It starts before you meet the donor. Are your contracts of gifts for “complicated” gifts up to standard? Are your gift acceptance policies on these gifts appropriate?

We have a committee of volunteer lawyers called the Innovation Committee. Why this name? We do not want them to do what many lawyers do- just say no. We want them to say yes, but protect everyone with proper contracts and documentation. They regularly review our contracts and improve them, for example on gifts of private company shares.

Often, complicated plans are not complicated for the charity. Mining flow-throughs?

Cash a cheque and produce a donation receipt- not complicated. Albeit the charity may receive a contract which indicates that a gift will be made and another in which the charity agrees to sell the gifted shares. It is pretty clear, but the first time have your lawyer look at it- then you will be good to go.

Another example which we will see in Seminar 3: Holdco takes out insurance on Mr. and Mrs. At death the proceeds of insurance move to the estate. There is a will gift made. Complicated? Perhaps. But to the charity it is a will gift. Cash the cheque, or sell the donated marketable securities and issue a donation receipt- not complicated.

The gift acceptance policies should indicate if outside counsel is needed. Most of the time it will not be needed. Sometimes yes but it will be based on quantum. A gift of $25,000 of preferred shares immediately redeemed for cash no need. A gift of $5m of preferred shares, yes, bring in counsel, if you do not have adequate in-house counsel. The Charity’s CPA, who “does the books” can be asked to look at documents or review calculations.

In essence as you start with strategic planning you will take advantage of outside council. As you become more experienced and learned and sure of yourself less so.

As we deal with complicated gifts in Seminars 2 and 3 I will review what may be necessary to make them happen.

Question. How do you deal with this objection- “if this made sense my accountant or lawyer would have told me about it”?

Choice response:

  • What we have showed you is what many donors have done. That does not mean it works for everybody. We expect and require that you obtain professional advice to ensure that this works for you and we would be happy to present the approach to your advisor and introduce him / her to other professionals who have adopted this way of giving

And now to Dev

What I was trying to show very quickly is a terrific gift idea and more importantly why it is suited to the Dev donor profile. I warned that it was a taste only and that we will dig deeper in Seminar 3.

The special feature for gifts of marketable securities from a company or holding company is that the tax-free gain amount enters the company’s capital dividend account aka CDA Let’s step back for a sec. In Canada individuals and corporations should generally be treated the same.

We all know that if Bobby invests in a share for $1.00 and sells it for $101.00 that Bobby has a $100 capital gain of which half is added to Bobby’s income and tax is paid. Bobby pays tax on $ 50 and just keeps the free half. Companies are treated the same way. If Bobby Inc. had made the same investment and sold the shares then Bobby Inc is still entitled to the free half of the capital gain which can be distributed tax free to the shareholders. Bobby Inc keeps track of the free half of the capital gain in an account called the CDA – which is great for family dynamics since Bobby Inc is 100% owned by Bobby’s wife and kids who will benefit from getting the free CDA dividend – go pay your own tuition kids. As an added incentive to donate shares, the entire capital gain not just half is added to CDA.  So, if you have a share worth $101 with a cost of $1 and Holdco gifts it, it obtains a donation receipt of $101 (good), it does not pay tax on the gain of $100 (very good) bit it also adds $100 to its CDA and can therefore declare a tax-free dividend (no personal tax) of $100 to the shareholder of Dev (spectacular).

The larger the gain not taxed the better- so who has public securities in their Holdco with low, low costs causing the biggest gains- people like Dev who have taken their private companies public.

So that is the point. How to improve your relationship with Dev- Dev, are you aware that, when you donate your shares in Holdco to us, what happens to your CDA. Let me show you- great way to pull money out of your company without tax!

What created angst was my comment that the profile of Devs is that they often do not want to sell the shares because they feel they will go up and up in value; and thus, they might ask you to hold them for a period (at the least if it is a fair number of shares gifted not to flood the market with a big sale which could move prices down).

Reactions – But our policy says we have to sell shares received. Our charity is not a stockbroker. What will CRA think? What will the receipt be? If the charity holds the shares, does Dev Holdco still get CDA?

First, let us understand that Dev cannot require the charity not to dispose, he is asking or advising.

The gift is the same gift if the shares are disposed of or not. The receipt is the value of the shares at the date of gift. Period. That value will establish the gain in Holdco and thus the CDA amount. Done.

CRA does not tell you to hold or not to hold stock except in a few cases. Public foundations cannot acquire a controlling interest in a company (having shares donated to you is not acquiring). Private foundations cannot hold more than 20% of any share class of a company. That is really it.

Charities do hold stock. Yes, charities are not stockbrokers; they engage stockbrokers and money managers to hold stock for them. Sometimes they hold stock purposely for long periods. Charities invest in private equity funds which buy shares of private companies with an objective of holding the investment for six, eight, ten or more years. There was an article about Canada’s largest public charity, the Mastercard Foundation- it owns  and holds continuously stock in one company only-yes, Mastercard.

Gift acceptance policies which state that gifted stock must be sold is logical and necessary. You do not want to receive a gift and start to time the market. Cleaner to have the policy. But that policy is set for the usual gift of marketable securities. But you need an exception to the policy for particular objectives which do not fit within the usual.

A university in California regularly asks Silicon Valley start-ups for a portion of the shares upon going public. They ask everybody. Sometimes the shares go nowhere and the university does not benefit. Sometimes the shares grow to huge fortunes and the university can then fund educational programmes.

It is about being open and changing our thinking (the Einstein quote!). When we ask is CHANGE possible, it means rethinking, undoing old processes that are out of date and opening new possibilities. There are twenty Devs in Canada- who would not want to create a long-term relationship and opportunity with even one of them.


Robert (Bobby) Kleinman FCPA, FCA

Bobby started in philanthropy in August of 1994 by becoming the Executive Director of the Jewish Community Foundation of Montreal (JCF) which is seen to be Canada’s most donor-centered foundation.

Previously a Partner in Taxation at Ernst and Young, he is now a Planned Giving Consultant specializing in tax-assisted giving. Bobby has helped many Canadian charities design their planned giving programmes, and has written numerous articles on the subject. He is also Past-President of the Conseil de la Philanthropie du Quebec, the Table Ronde du Quebec of the CAGP, JIAS Canada, JIAS Montreal, and the Mount Royal Tennis Club.


To access the Session 1 PowerPoint deck used in the workshop, click here.
The information contained in this Handbook reflects tax law in effect as of May 2021

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