Crypto, bitcoin and charitable giving

15% of people worldwide include charitable giving in their Wills. The emergence of crypto assets, such as Bitcoin, is presenting new challenges for donors, charities and their legal advisers alike. At this moment in time – and the landscape changes quickly in this area – platforms like Coinbase do not permit beneficiaries to be named within their own schemes. Your crypto assets should be dealt with in your Will. Farrer & Co have already briefed on the steps owners should take to provide for the distribution of crypto assets upon death, here.

As well as thinking more about end-of-life giving, this article explores the potential benefits of charities engaging with crypto assets more generally and discusses the readiness of organisations in the sector to accept such donations and the opportunities this presents. This is particularly in the context of donor-advised funds, with insight from Anna Josse (CEO and co-founder) and Kitty Harris at Prism the Gift Fund.

Crypto bequests

Legacy giving is an area where there is real potential for the sector to engage with this new crypto-world, and where there is growing incentive for charities to get infrastructure in place relatively quickly. For potential legators, though, there are some key points to keep in mind.

Absent impediments, the assets of a testator’s estate are distributed by the executors in accordance with his or her wishes, after the payment of debts, taxes and expenses. It is important to remember that a Will is a public document, once proved; this has special implications for crypto assets. While it is imperative that the distribution of crypto assets is provided for by Will, details of the owner’s digital "wallet" and how to access it, should be recorded separately and kept securely alongside the Will. This will ensure the executors are able to distribute the crypto assets as the owner wished.

At the time of writing, very few charities have publicly shown preparedness to accept crypto assets directly as bequests or otherwise. The Royal National Lifeboat Institution, for example, has published its digital wallet address and states:

From our research into future trends, it looks likely that we will receive digital currency as a donation and/or as part of a legacy at some point and we want to be prepared for that eventuality.

What is less clear is how charitable institutions without wallet addresses or BitPay schemes will be able to receive crypto assets. Plainly, there is the option of liquidating crypto assets prior to making cash donations (which executors granted the appropriate powers would also be able to do). But this might mean some of the possible benefits of donation of crypto assets being lost. Donors would also need to consider whether any taxable gain may arise and if there are any proper ways to avoid part of the intended gift being lost to the revenue.

The forward-looking nature of the RNLI’s statement also hints at a theme that exists across the sector at present; that there is great potential for charities in crypto assets and the blockchain technology that underlies them, but that this is not yet being fully realised. The charity’s creation of infrastructure is more an act in preparation for something that is yet to happen in a big way, than a response to existing and substantial demand.

Potential benefits of blockchain

To return to basics briefly, why is the charitable sector interested in blockchain? An earlier Farrer & Co briefing explains the potential for this technology to enhance charitable giving. Its power is essentially that the technology allows for total transparency; it is possible to see exactly how a donation is being deployed.

For donors keen to ensure that their legacies and other gifts are spent as they would wish, blockchain also allows for the creation of smart contracts – where funds are, for example, only released when certain conditions are met. This could be very exciting for the creatively-minded and passionate philanthropist.

Blockchain also represents a potential benefit to charities in receipt of donations. This is both in terms of donor due-diligence, as it can provide a very clear chain of provenance (although part of the culture around crypto-assets is often anonymity, so this is a tension some charities may have to engage with) and when monitoring the use that is made of funds they onward-grant to other organisations or individuals. In other words, there is potential benefit for charities (particularly grant-makers) both at the input and output end of the process; both of these involve risks that blockchain may be able to help mitigate, in appropriate circumstances (also see the Charity Commission’s guidance on donor due-diligence and monitoring here).

As suggested by the RNLI example, though, so far we’re still in the early days of the sector’s engagement with crypto. For example, we’re still some way from crypto-grants by charities being anything like mainstream. It seems that relatively few charities currently have capacity (and willingness) to work this way, but there are signs of progress. UNICEF, for example, has recently indicated its readiness to receive and hold donations, and to make grants in crypto-currency.

Donor-advised funds and Prism the Gift Fund

Donor-advised funds (DAFs) are a good example of charities that could make use of both inward and outward crypto transactions.

Prism the Gift Fund is one of the UK’s leading DAFs, having been established by Anna Josse and Gideon Lyons in 2004. We asked Anna and her colleague, Kitty, for their thoughts on blockchain and crypto-assets.

For the uninitiated, Anna and Kitty describe a DAF as providing an "own-name foundation" for donors that is a tax efficient vehicle for gifts of cash, shares and property. The benefit of a DAF is that the donor has peace of mind that their charitable grants are being administered correctly, efficiently and in a time and cost-effective way without the responsibility and potential liability of running a charity themselves.

They told us that there is scope for great things here but that, as we suspected, the sector’s door of opportunity is yet to swing fully open. Partly, this seems to be because relatively little is known in the UK about how to engage with the new technology, or indeed even why one might want to do that. Many potential donors aren’t even making the most of, for example, the existing tax reliefs and exemptions that have been out there for years, let alone looking into new possibilities. Prism and others like them have been working hard to try to inform the sector about this (see, for example, the article here) while also getting their own infrastructure in place. They have also been in close discussions with HMRC to understand the potential tax implications in this area, and we understand those conversations have been encouraging.

In terms of the wider culture and understanding around crypto, Anna and Kitty told us that things still seem fairly nascent in the UK, as opposed to a more fully developed crypto-sector in the US. But you don’t have to look too far to find signs that philanthropists are starting to bend their minds this way. And when there are hundreds of billions of pounds’ worth of crypto-assets in play today, it’s easy to see why Prism is keen to lead the charge.

Prism is currently exploring the input more than the output side of the process, in other words, donations into the DAF from philanthropists holding crypto-assets. What is currently much more challenging – and still some way off – is the output side, or donations from the DAF in crypto to other charities. As discussed above, the sector is not quite there yet, even amongst larger organisations.

Conclusion

There are clearly still some challenges here. Some of which can be overcome with practical steps and understanding (such as would-be legators taking the steps described above) and some of which may take more time as the charity sector and donors grow their collective knowledge. So it’s hard to know to what extent all of this will really take off, so far as charities in England and Wales are concerned. But from our discussions with Prism and our own understanding of the sector, our guess is that – absent any serious shocks, like onerous regulation of crypto-currencies that might disrupt things – we will be seeing many more charities taking the steps that RNLI has and then going further. In time, given the potential benefits that exist in appropriate circumstances, accepting funds and making grants in crypto-currency may well become just part of the furniture.

If you require further information about anything covered in this briefing, please contact Caroline Vollers, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, October 2019