My Favourite Planned Gift: Robert Kleinman

We asked advanced leaders in our Government Relations Committee to share their thoughts on modern planned giving.  Today’s post comes from a longtime member, volunteer and strategist Robert Kleinman, whose insight will be of value to charitable and financial gift planners alike. 

My Favourite Planned Gift

I keep on saying these words when I am with donors. I am referring to a gift choice which is not complicated or sophisticated but to me packs a big punch.

Corporate appreciated securities. Huh! We know personally donated appreciated securities is a terrific gift. You receive a full value tax receipt and do not pay tax on the appreciation, effectively reducing the cost of giving. 

So why corporate?

Assuming there is income to use the receipt the corporation will also utilize the full receipt value. Here in Quebec, the cash tax on corporate property income is 50%. We will also not pay tax on the gain in the corporation due to the gift. But there is more in the corporation. If a corporation does not pay tax on income (for example 50% of capital gains which are not taxed or insurance proceeds arising from death) the untaxed amount “goes into “ the company’s capital dividend account (“CDA”). This is not a real account it is just a number. Company A has $42,000 in its CDA.

Company A can declare a dividend to its shareholder of $42,000, designate it as arising from its CDA, and thus the shareholder receives the dividend TAX-FREE, which is really good. If Company A wished to put $42,000 in its shareholder’s hands and there is no CDA, perhaps it would declare a $65,000 dividend to net the shareholder $42,000 after tax (Quebec tax rates).

So the corporation “saves” $23,000 of cash by being able to utilize the CDA which can arise from a wonderful gift of appreciated securities. This obviously reduces the cost of the gift. If the cost base is really low you can bring the cost of gift to a small number.

There is another advantage for senior shareholders. Their companies contain a hidden tax burden when the last spouse dies. We are deemed to dispose of our assets, including private company shares at death and thus capital gains arise. So giving these gifts from the company and paying out CDA dividends strip the company of value which is normally taxed at death.  Hence....My favourite Planned Gift!!

Robert A. Kleinman FCPA, FCA is the Executive Vice-President, The Jewish Community Foundation of Montreal. He has been working in the planned giving field since 1994 and before that worked for 18 years in the firm of Ernst & Young as Partner and Director of Tax. Robert has been influential in introducing planned giving strategies to Canadians. He is Past-President of the Centre de Philanthropie du Québec and has volunteered with Jewish Immigration Aid Services and The Mount Royal Tennis Club. Robert is a long-time volunteer and leader with CAGP in Quebec, on our national government relations committee, as well as a key presenter and planner of the CAGP Advanced Summit. He has published numerous articles on taxation and gift planning and is the author of the JCF Gift Planning Handbook—a critical resource consulted by professionals in estate planning and charitable giving.