This is our final Crypto for Advisors newsletter of 2024. We’ll be taking a break next week to relax ahead of what we believe will be an action-packed 2025 in the crypto space.
This year, we have published 51 newsletters dedicated to educating advisors about digital assets. Our readership has almost doubled from 24,000 to 44,000 active subscribers. We thank the many advisors who have signed up and collaborated with us each week. As always, we like to hear your feedback and suggested newsletter topics, so please reply to this email or connect with me on LinkedIn to share your thoughts and ideas.
In today’s edition, Phil Geiger from bitcoin financial services provider Unchained explains what bitcoin donor-advised funds are and how they work.
Next, Eric Tomaszewski of Verde Capital Management answers questions about funds and possible tax implications on Ask an Expert.
Happy reading.
– Sara Morton
The Rise of Donor-Advised Funds: Tax Benefits and the Power of Bitcoin DAFs
In recent years, donor-advised funds (DAFs) have gained popularity as a philanthropic vehicle, offering a flexible way for people to manage their charitable giving. Adding to the appeal is the emergence of bitcoin DAFs, which combine the flexibility and tax benefits of traditional DAFs with the unique advantages of on-chain assets.
The rise of donor-advised funds
A DAF is a charitable giving account that allows donors to contribute assets to a fund, receive an immediate tax deduction, and then recommend grants to charities over time. DAFs have grown exponentially in recent years. In 2024, there are around 2 million DAF accounts in the United States, with a combined value of more than $250 billion.
DAFs offer comfort and control. Donors can contribute at any time, make investment decisions to grow the fund’s assets and increase the amount for charities, and then direct grants to qualified charities when ready. This allows people to align their donations with their financial situation and support a variety of causes over the long term, but they don’t necessarily have to distribute their donations immediately.
Tax Benefits of Donor Advised Funds
The tax advantages of DAFs are one of the main reasons for their popularity. When donors contribute to a DAF, they can take an immediate charitable deduction for the full value of their contribution, subject to IRS limits. This applies whether the donor contributes cash, bitcoins, securities, or other assets. For example, in the case of appreciated cryptocurrencies, a donor can avoid paying capital gains taxes, which can be significant in investments that have appreciated over time.
The deduction is especially valuable for people seeking to offset a large taxable event, such as the sale of a business or the exercise of stock options. Donors who contribute appreciated assets directly to a DAF receive the full fair market value as a deduction, while the DAF can sell the assets without incurring capital gains taxes. This strategy allows donors to make larger charitable contributions without incurring tax penalties.
Additionally, DAFs offer flexibility in terms of deadlines. While donors can take an immediate deduction when they contribute assets, they can delay the actual distribution of funds to charities. This allows donors to manage their donations strategically, decide when and where their funds are allocated, and optimize their charitable impact.
The Rise of Bitcoin DAFs
Bitcoin DAFs combine the flexibility and tax benefits of traditional DAFs with the unique advantages of on-chain bitcoin. Donors who own bitcoins (or other cryptocurrencies) can contribute directly to a bitcoin DAF, receiving the same tax benefits as donating appreciated securities.
While traditional DAFs often accept cryptocurrency, they typically sell the digital asset for dollars and can then give donors exposure to bitcoin within the DAFs through a bitcoin ETF or stocks like MicroStrategy. With a bitcoin DAF, bitcoin can be donated directly, it remains within the DAF on-chain in the custody of multiple signatures, and grants can be made in bitcoin or US dollars to any 501c3.
Bitcoin DAFs have had great initial success, with the world’s first bitcoin grant from a DAF going to the Base58 School of Engineering and a one bitcoin grant awarded to the Human Rights Foundation.
– Phil Geiger, VP of Product Marketing, Unchained
ask an expert
Q. How do financial advisors think during a conversation about “giving”?
It all comes back to the purpose and the general intention of wanting to give. I think most should consider giving if there is a visceral desire to support others in some way. When leading with altruism, people lead with the right perspective in mind.
Q. What resources exist to support people on this giving journey in a more comprehensive way?
Registered investment advisors are positioned to have more comprehensive conversations so clients can optimize their giving goals and priorities. Beyond that, The Giving Block is a great educational resource for both donors and charities. Last but not least, Endaoment has paved the way by using blockchain technology to streamline the on-chain donation process across a variety of asset types.
Q. Why are donations even more relevant today when markets are accelerating?
When markets rise, any profit taking can lead to tax ramifications. By design, a DAF allows you to reduce some of your tax obligations while mitigating the volatility risks of rapidly appreciating assets. This could also allow donors to more widely diversify their asset mix due to the indirect rebalancing effect.
This can also create an opportunity for legacy and multigenerational giving. Digging deeper into your values and putting your family in a position to allow donors to support causes beyond their lifetime is a great way to follow some advice from the Rockefeller family, which has given to philanthropic causes for six generations.
– Eric Tomaszewski, Financial Advisor, Verde Capital Management
Keep reading
