Endowments and reserves: Time for a check up
As your organization emerges from the aftermath of pandemic shut downs, you and your board of directors may look back and realize that 2020 was a wake up call. Nearly out of the blue, you were faced with figuring out how to ensure that your mission can survive ups and downs in the economy and shifting donor priorities.
At the very least, COVID-19 opened the door for an opportunity to revisit important questions that every charitable organization needs to be prepared to address. For instance:
How clear are our endowment and reserve fund spending policies?
Do these policies enable us to use the resources in an emergency? If so, what constitutes an emergency?
Are there limits on how our organization can use its reserves and how much we can withdraw?
Who has the authority to make decisions about dipping into reserves?
What evidence and documentation are required to do so?
Yet another set of questions gets to the heart of donor intent:
Have we properly accounted for various donor gifts?
Did any donors themselves use the term “endowment” in their gift agreements or instructions, and if so, what were the donors’ expectations for our organization’s use of the funds?
Would donors’ expectations and intentions cover emergencies?
Whether or not a donor explicitly used the word “endowment,” how should our staff and board honor donor intent if our team knows that the donor intended the funds to be available as emergency reserves?
For any funds received where a donor expressed certain wishes, have we properly documented our investment and spending decisions such that donors and their families would be comfortable if we were ever asked to produce written materials supporting our actions?
Whoa! We know that’s a lot to take in, but our team is here to help.
In addition to brushing up on the rules and expectations surrounding “endowment” gifts, we suggest that you lean on the community foundation to help you evaluate and organize your various endowment funds and reserve accounts. In many instances, the community foundation can offer structures and accounting services to help you avoid tricky situations in which donor intent and emergency needs of your organization appear to be at cross purposes.
Gifts of cryptocurrency: What you need to know
Just when you thought you had a handle on how to accept gifts of “alternative assets” such as real estate, closely-held securities, and collectibles, there’s a new gift in town, and it’s called cryptocurrency (or virtual currency). For some charitable organizations, this phenomenon became more real a few weeks ago when the University of Pennsylvania announced a landmark $5 million gift of bitcoin to support the Wharton School’s Stevens Center for Innovation in Finance.
Complex? Yes. Totally unprecedented? No. Your organization’s approach to accepting charitable gifts of cryptocurrency ought to run parallel to the strategies you routinely use to accept gifts of any highly-appreciated asset.
For example, cryptocurrency gifts require documentation similar to what’s necessary to substantiate gifts of real estate, closely-held stock, and collectibles. And, in the case of cryptocurrency held by a donor as an investment for more than one year, the rules for gifts of long-term capital gains assets apply. In that situation, the donor’s gift of cryptocurrency is valued at its fair market value at the time of the donation.
To receive a gift of cryptocurrency, your organization will need to establish an account with Bitpay, Coinbase, or other third-party processor. And remember, your organization will need to sign the donor’s IRS Form 8283 for the donor to be eligible for the charitable deduction (unless the value of the gift is less than $500). The donor should provide you with a qualified appraisal for any cryptocurrency gift having a value greater than $5,000. If you sell the cryptocurrency within three years of receiving it (which you most likely will do in order to adhere to your investment policy’s diversification requirements), you’ll need to file IRS Form 8282. Your organization won’t pay tax on the gains from the cryptocurrency’s sale, though, just as no tax is paid on the gains from other gifts of appreciated assets.
For more information, you can check out the IRS’s guidance for charitable gifts of cryptocurrency, including confirmation that the usual rules apply for a “contemporaneous written acknowledgment,” even though cryptocurrency is treated and reported by your charity as a non-cash gift.
Most importantly, call us! The team at the community foundation is ready to assist your organization with accepting and investing gifts of all alternative assets, including cryptocurrency. It is easy for your donor to contribute property such as cryptocurrency to a fund at the community foundation, and the proceeds from the sale of the property in turn can be used to support your organization. The community foundation is here to ensure that you maximize benefits from your donors’ generosity while avoiding pitfalls and hassle.