As a researcher with over two decades of experience in the financial industry, I’ve seen the evolution of investment strategies from traditional stocks and bonds to digital assets like cryptocurrencies. This year has been particularly enlightening as we’ve delved into the world of donor-advised funds (DAFs) and their unique benefits for philanthropic giving.
2024 marks the end of our last Crypto Advisors Newsletter for the year. We’re going to unwind for a week before diving into what we anticipate will be a thrilling and eventful 2025 within the crypto sector.
2021 has seen us release 51 educational newsletters focusing on digital assets for advisors. Our readership has significantly grown, jumping from 24,000 active subscribers to an impressive 44,000! We extend our gratitude to all the advisors who’ve chosen to join and engage with us each week. As ever, we appreciate your valuable feedback and suggestions for future newsletter topics. Feel free to express your thoughts in this email or connect with me on LinkedIn.
Today, I delve into the topic of Bitcoin Donor-Advised Funds, a concept elucidated by none other than Phil Geiger from the Bitcoin Financial Services Provider, Unchained. In this exploration, we’ll uncover their nature and the mechanics behind their operation.
Later, Eric Tomaszewski, a representative from Verde Capital Management, addresses queries regarding investments and possible tax consequences in the Ask an Expert segment.
Happy reading.
– Sarah Morton
The Rise of Donor-Advised Funds: Tax Benefits and the Power of Bitcoin DAFs
Over the past few years, donor-advised funds (DAFs) have become increasingly favored as a charitable tool due to their adaptable nature for managing philanthropic contributions. What makes them even more attractive is the rise of bitcoin DAFs, which merge the flexibility and tax benefits typical of traditional DAFs with the distinctive perks associated with digital assets on blockchain networks.
The Rise of Donor-Advised Funds
A Donor-Advised Fund (DAF) serves as a charitable savings account where donors can deposit assets, qualify for an instant tax break, and subsequently decide which nonprofits to support at their convenience. The popularity of DAFs has significantly increased in recent times. By 2024, the U.S. is estimated to have approximately 2 million active DAF accounts with a collective worth exceeding $250 billion.
Donor-Advised Funds (DAFs) provide flexibility and management options for contributors. These funds enable contributions whenever it’s convenient, allowing donors to make strategic investment choices that can boost the fund’s resources for charity. Later on, grants can be directed towards eligible charities at their discretion. This setup empowers individuals to match their philanthropy with their financial status and contribute to multiple causes continuously. However, there’s no requirement for immediate distribution of donations.
Tax Benefits of Donor-Advised Funds
One major factor contributing to the widespread use of Donor-Advised Funds (DAFs) is their tax benefits. When individuals contribute to a DAF, they receive an immediate charitable deduction for the total value of their contribution, within IRS restrictions. This advantage remains whether the donation is cash, bitcoin, stocks, or other assets. For instance, when it comes to appreciated cryptocurrencies, a donor can avoid having to pay capital gains taxes on investments that have increased in value over time. These potential tax savings can be substantial.
This method is particularly useful for people aiming to balance a significant taxable occurrence, like selling a business or using stock options. By transferring appreciated assets directly into a Donor-Advised Fund (DAF), donors can claim the full market value as a tax deduction. The fund, in turn, won’t have to pay capital gains taxes when it sells these assets. This approach enables donors to make more substantial charitable contributions without facing hefty tax bills.
Furthermore, DAFs provide a level of flexibility regarding the timing of contributions. Donors can claim an immediate tax deduction upon donating assets, yet they have the ability to postpone the distribution of these funds to charities. This temporal leeway enables donors to plan their philanthropic activities thoughtfully, choose when and where their resources are disbursed, and maximize their charitable influence optimally.
The Emergence of Bitcoin DAFs
Bitcoin-centered Donor Advised Funds (DAFs) offer the perks of conventional DAFs, such as flexibility and tax benefits, along with the distinct advantages of on-chain bitcoin. By contributing bitcoins (or other digital currencies) directly to a Bitcoin DAF, donors enjoy the same tax benefits as donating appreciated securities.
Instead of traditional Donor Advised Funds (DAFs) selling cryptocurrencies like bitcoin for dollars before offering exposure within the DAF through a bitcoin ETF or MicroStrategy-like stocks, a Bitcoin DAF allows for direct donation of bitcoin. The donated bitcoin stays in on-chain multi-signature custody within the fund, and grants can be made either in bitcoin or U.S. dollars to any eligible 501c3 organization.
Grants funded by Donor-Advised Funds (DAFs) associated with Bitcoin have had an impressive start, as the initial Bitcoin grants were given to the Base58 School of Engineering and the Human Rights Foundation, each receiving one Bitcoin.
– Phil Geiger, VP of product marketing, Unchained
Ask an Expert
Q. How do financial advisors think through a conversation about “giving”?
It all comes back to purpose and the overall intent of wanting to give. I believe that most should consider giving if there is a visceral desire to support others in some form. By leading with selflessness, people are leading with the right perspective in mind.
Q. What resources exist to support people on this journey of giving in a more well-rounded way?
Investment advisors are ideally situated to have comprehensive discussions with clients, enabling them to maximize their charitable objectives and preferences. In addition to this, The Giving Block serves as an excellent learning tool for both donors and charities. Lastly, Endaoment has revolutionized the process of online giving using blockchain technology by simplifying the donation process for various types of assets.
Q. Why is giving even more relevant today when the markets are accelerating?
When stocks rise, cashing in on profits may lead to tax obligations. A Donor-Advised Fund (DAF) is structured to help lessen your tax burden and manage risks associated with swiftly appreciating assets. This setup can also encourage a wider asset distribution due to an indirect rebalancing effect.
This approach can also provide an opportunity for both legacy and multi-generational charitable giving. By instilling values deeply within your family, you set up a scenario where contributors can back causes long after their lifetime has passed. Emulating the Rockefeller family, who have been involved in philanthropy across six generations, is a smart method to achieve this.
– Eric Tomaszewski, Financial Advisor, Verde Capital Management
This article’s opinions belong to the writer and may not align with those held by CoinDesk, Inc., its proprietors, or related entities.
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2024-12-19 19:08