You might want to revisit if you're still skeptical about cryptocurrency or its ability to do something positive for society. I am aware of one charity that has a crypto gift of nearly $900 million – with several similar gifts in the pipeline. Increasingly, charities are viewing crypto gifts as gifts of low-basis assets that are treated as long-term capital gain assets, much like publicly traded stocks.
Will all charities accept crypto gifts?
No. Like real estate, many charities don't accept “complicated” assets like crypto. They cannot value it properly and are not equipped to manage and distribute it as they can with cash and marketable securities. For example, they may not have a gift acceptance policy that allows them to receive things like real estate and other complex assets. They may not have a checklist that says what they should look for in donors before accepting them. Some charities may not want the risks (or publicity) associated with crypto, just as many are suspicious of large real estate gifts that could cause environmental concerns.
That said, many charities have been set up to accept cryptocurrencies. Even Fidelity's massive donor-advised fund platform allows crypto gifts. According to Fidelity, 95% of crypto owners have made charitable investments, and the size of those investments could increase dramatically as 90% of global family office clients are young people who “seek or seek” the inclusion of crypto in their portfolios, according to the news. research by Ocorian. In fact, crypto contributions to Fidelity Charitable have reached more than $300 million during the first four months of 2024, up from less than $50 million for all of 2023.
It's clear that crypto-based gifts are a growing trend. As an advisor, you should be quick about donating crypto because, before long, clients will be looking to you for advice on their highly valued crypto holdings, just as they would for any other highly valued long-term asset. If you want to continue working with the next generation in your clients' families, I urge you to start giving crypto gifts.
Another reason I mention this is that a study by Fidelity Charitable found that two in five (38%) crypto investors were unaware that the sale of digital assets was a taxable event – just like the sale of appreciated securities long term. The study also found that only half of investors knew that digital assets could be donated to charity.
This is where it comes in.
Good candidates
Crypto gained about 130% on average in 2023 versus 20% for US stocks. You may have more customers than you think with significant unrealized crypto profits – and excess concentration – that can be mitigated through tax-advantaged gifts. In terms of tax planning, here are some other ways your clients can benefit by making gifts of appreciated cryptocurrencies to charity:
- The tax deduction is generally equal to the fair market value of the donated cryptocurrency. Gifts of assets, other than cash or marketable securities, are subject to qualified appraisal standards set forth by the Internal Revenue Service.
- Instead of paying capital gains taxes on appreciation, a Section 501(c)(3) charity of the Internal Revenue Code receives the full value of the donor's contribution. For those donating to split interest trusts (charitable remainder trusts or pooled income trusts), this means that 100% of the capital is available to produce income.
- While many charities accept crypto directly, contributing the currency to a donor-advised fund can be easier.
- With a single contribution, donors can support several charities at once (or over time) while being able to claim an immediate tax deduction. This can be more administratively efficient than sending smaller amounts of crypto to charities directly and having to collect individual tax bills from each organization.
Gift Structuring
Going back to the $900 million crypto donation that I'm aware of, here's how the gift is being structured: The donor will contribute the crypto to a limited liability company (LLC) and then gift it to LLC charitable organization. Otherwise, if they sold the crypto and converted it to cash, they would have a recognition event. Also, by using an LLC, the charity doesn't have to worry about getting its own crypto wallet or other trading mechanisms. The donor can be the managing member of the LLC and manage the sale of cryptos. This makes it easier for the charity to receive and relieves it of the administrative burden of the gift. This is particularly useful for less sophisticated and smaller organizations.
If you are unfamiliar with the mechanics of giving an LLC to charity, be sure to have a skilled practitioner assist you. This is not a DIY project.
Randy A. Fox, CFP, AEPis the founder ofTwo Hawks Consulting LLC. He is a renowned wealth strategist, philanthropic estate planner, educator and speaker.