Helen Brown Group

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European-style foundations come to the United States

Bethlem Hospital, London, 1677. Engraving.
Credit: Wellcome Library, London. Wellcome Images (http://wellcomeimages.org)

Foundations have existed in Europe for over 600 years. The oldest is likely Bethlem (aka “Bedlam”) Royal Hospital, which has been taking care of the mentally ill without interruption since the 1400s in London. Even though it’s a charitable organization, it’s called a foundation because that’s the legal way it was set up.

The way foundations are set up in Europe is different in the law than the way foundations (as we know them) are set up here in the US. (At least, until now – I’ll get to that in a minute).

The foundations we’re familiar with are required to give away at least 5% of their assets yearly to beneficiaries that are nonprofit organizations. The purpose of the giving has to be charitable, and if there’s too much monkey business, like commissioning and buying self-portraits or giving grants to pay for a trustee’s kid’s tuition or what-not, the authorities tend to take notice and shut it down. US foundations have to file a report annually saying how much money they have, what their charitable priorities are, who their trustees are (and how much they pay them), and what they gave their money to in that year.

In Europe, a foundation can be set up for charitable purposes but, depending on the country, it doesn’t have to be. As mentioned above with Bethlam Hospital in England, that foundation was established for a very charitable purpose. UK law states that if you’re going to incorporate as a foundation, it has to be for public-benefit purposes only. That said, there really aren’t that many entities known as “foundations” in the UK – most grant-making organizations are called grant-making trusts or charitable trusts.

In the countries where it’s not required that a foundation has to be charitable (like Austria, Belgium, Germany, The Netherlands and Liechtenstein, just to name a very few), a company founder, let’s say, can establish a foundation entity that could contain their actively-operating company, their home(s) and artwork, their yacht, or any other asset that they want to protect from taxation or transfer to future generations without the encumbrance of pesky death taxes.

For example, flat-pack furniture mega-company IKEA’s ultimate corporate parents are two foundations, Stichting INGKA Foundation (based in The Netherlands) and Interogo Foundation (based in Liechtenstein). Neither foundation makes grants; they are a tax-efficient structure holding the various divisions and subsidiaries of IKEA and entirely benefitting the Kamprad family. When IKEA founder Ingvar Kamprad passed away, his family members were already on the board of the foundations, so the transition of assets was smooth and unencumbered.

So why am I going into all this? Because that kind of European-style non-grant-making foundation now exists in the US.

In late 2017, the New Hampshire Foundation Act was passed in Concord, NH. Written largely by a wealth management attorney named Todd Mayo, the law allows for the establishment of foundations in NH that do not have to be either charitable or philanthropic. The purpose of the law was to appeal to high net worth individuals (HNWIs) outside of the US (but anybody is eligible) who want to park their assets in a stable country but maintain control over it.

Here’s what I mean by that. Let’s say you’re a HNWI that wants to place assets in a country that is not where you reside to avoid taxes or protect your assets in case you divorce. Usually this might be done in an offshore trust, but a trust that’s established in Bermuda or Panama is required to have as its manager a Bermudan or Panamanian. You’re effectively signing away the rights to your assets and trusting that the Bermudan or Panamanian isn’t going to run away with it (that’s generally a fairly safe assumption since by law they’re required to provide a duty of service to the trust founder. But still – it’s got to give you pause as you sign away hundreds of millions.).

The New Hampshire law allows someone to create a non-charitable private foundation (NCPF) where you get to keep control over your money. Like a trust, a person can use a NCPF to park assets to provide for themselves or their family during their life and after their death and protect it from taxation. But with an ordinary trust, the beneficiaries have a say in the management of the trust. With a NCPF, the ownership of the assets is with the NCPF. The beneficiaries have no ownership or rights to ownership of the assets. The NCPF is managed by a board or council, and the board’s duty is to the NCPF and not (necessarily) to the beneficiaries.

According to some trust and estates legal experts, the law is sloppily written but it’s a start in creating European-style foundations here in the  US.

Meanwhile, in Wyoming

In 2019, Wyoming went one step further. Wyoming’s Statutory Foundation Act allows that establishment of foundations that can be a trust, a business entity (like an LLC), or a hybrid of the two.

The Statutory Foundation has to file an annual report, benefit at least one person (and you can use the term “benefit” loosely here), and have a board of directors. However, the identity of the founders, directors, beneficiaries, or protectors of a Wyoming Statutory Foundation do not need to be filed or recorded for the public to see, so there’s a good chance – like Donor Advised Funds – we’ll never know the names of those behind their establishment.

These new entity types are fairly new and, as far as I was able to find, still untested. Still, for those of us researching foundations and perhaps finding something that doesn’t add up, one of these non-charitable private foundations might be the reason why.

Much more information here:

 

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Interview with a prospect development crypto miner

This week we have a real treat of an article: HBG’s Associate Director for Consulting, Tara McMullen-King, interviewed Amy Begg, former NEDRA board president and an Ann Castle Award recipient. Amy is also an active cryptocurrency miner (with a heart of gold!). Tara and Amy had a fascinating discussion about crypto mining, and Amy generously shared her knowledge and experience about what it means to mine cryptocurrencies. Huge thanks to Amy for taking the time to explain it all for us! ~Helen

tara

Tara McMullen-King

It is clear that the demand for cryptocurrency and crypto mining is not subsiding any time soon – as of August 2021, the combined value of the world’s cryptocurrencies stood at about $2 trillion. Not only are more people investing in crypto, but an increasing number of donors are using cryptocurrencies like Bitcoin to fund their charitable contributions. According to a recent article in the New York Times, there has been a significant increase in cryptocurrency donations to donor-advised funds – for example, Fidelity Charitable received $150 million in cryptocurrency in 2021, up from $28 million in 2020 and only $13 million in 2019. And in May 2021, it was reported that a $5 million anonymous gift in the form of Bitcoin had been made to the Wharton School at the University of Pennsylvania – the largest cryptocurrency gift ever made to the University.

Amy Begg

While many nonprofits are still not set up to accept gifts of cryptocurrency, more and more are beginning to put the internal infrastructure in place to do so, or signing up to accept crypto gifts through donation platforms like The Giving Block – in part because of some of the benefits. Donors can benefit from tax write-offs since cryptocurrency is classified as property (which means no capital gains tax and a fair market value deduction). They are also cost-efficient for organizations involved in international transactions since they eliminate the usual costly associated international banking fees. And with close to half of Millennial and Gen-Z investors owning cryptocurrencies, making the choice to accept crypto donations will also potentially provide an opportunity for nonprofits to engage with a new generation of younger donors in the future.

But how does cryptomining work? How do people get started in the field? And what even IS cryptocurrency? To try to get some answers to these questions, I sat down for a conversation with Amy Begg, Managing Director of Prospect Management at Harvard University, who is a miner with a wealth of knowledge and insight about all things crypto!

Tara McMullen-King: How do you see cryptocurrency impacting our work in nonprofit fundraising? Do you see a need for more nonprofits to set themselves up to accept Bitcoin and other digital assets?

Amy Begg: There is just a LOT of wealth creation going on right now, at different levels. More and more people are becoming interested in cryptocurrency and are finding ways to mine and invest in things like Bitcoin and Ethereum – and I don’t see this stopping any time soon! You are also seeing more family offices offering Bitcoin to clients. I definitely think there is a need for more nonprofits to get into the crypto space, because I think crypto is the future of money. For example, you take something like the Bitcoin Beach project where an anonymous Bitcoin HODLer made a donation to help create this entire Bitcoin economy in this little village on the coast of El Salvador…. and it has completely changed the village and people’s lives there. Most of the population didn’t have easy access to banks, and most of the local businesses couldn’t accept credit cards since they didn’t qualify for merchant accounts. Now they can pay for things – and get paid themselves – in Bitcoin in this tiny little village. They have also seen that it is teaching them about finance and how to save money, since they don’t want to spend their Bitcoin (as they are able to watch it increase in value). And now El Salvador just passed a bill in June making it the first country in the world to adopt Bitcoin as legal tender!

Tara: What does it mean to “mine” cryptocurrency? What types of cryptocurrencies can someone mine?

Amy: The term “cryptocurrency mining” or “cryptomining” means gaining cryptocurrencies by solving cryptographic equations using computers. This process involves validating data blocks and adding transaction records to a public record (a ledger) known as a “blockchain.” (Here is a good video from the New York Times: https://youtu.be/0B3sccDYwuI)

Some of the most popular coins to mine are:

  1. Bitcoin
  2. Ethereum
  3. RavenCoin
  4. Monero
  5. LiteCoin
  6. Ethereum Classic
  7. Zcash
  8. Grin
  9. Metaverse
  10. Bitcoin Gold
  11. Dogecoin
  12. DASH
  13. Vertcoin
  14. DigiByte
  15. Monacoin
  16. Aeternity
  17. Cardano
  18. VeChain
  19. BitTorrent Token

Most of today’s coins are mined by GPUs and ASIC miners. GPUs are video card-based mining, which is typically used for gaming – these miners are flexible and have the potential to mine different cryptocurrencies, enabling you to switch between coins (in case the market is bearish or bullish). However, GPU mining consumes lots of power and involves complex computation. ASIC miners work on particular algorithms and have the sole purpose of mining cryptocurrency – these can run much faster than GPUs and can lead to greater profits!

There are a lot of different coins that can be mined –if someone is considering getting into mining, they should investigate the profitability of a coin. There are many sites that can help with this – my personal favorite is WhatToMine. Some of the factors you want to take into consideration include your electricity costs, the type of equipment you plan to use (ASIC miners versus GPUs), and the calculated hash rate.

Once you enter the total hashing power of your mining rigs, you can check each GPU, CPU, or ASIC chip’s rate. The next step is to enter the total power consumed by your rigs in watts, and then the price of your electricity in kWh (kilowatt-hours) – if you are not aware of the prices per kw, you can ask your electricity provider. If you have joined the paid mining pool, you then enter its fee. After deducting all these expenses, the mining calculator will calculate the net profit you would expect to make per day, month, or year.

There are two ways to generate coins: Proof of Work (PoW) and Proof of Stake (PoS). Any coin that is generated by Proof of Work is minable; Proof of Stake can be done by staking your coins. Most recently, Ethereum has been the most profitable coin to mine – the Ethereum community and its creator, Vitalik Buterin, are in the process of attempting to move from PoW to PoS.

From https://www.bitdegree.org/crypto/tutorials/proof-of-work-vs-proof-of-stake:

Tara: Can someone mine crypto on their personal computer, or do they have to build a separate set-up? What does it take to build a mining setup– is it difficult or expensive? What does your daily mining process look like?

Amy: Each coin has a specific algorithm associated with it – and in order to mine that coin, you need to have a processor that can handle not only the algorithm, but the size of the blockchain associated with that algorithm (which grows over time). A data structure called a DAG (Directed Acyclic Graph) is used – it is like a database that connects different pieces of information together. In cryptomining, a DAG records transactions and makes mining secure – without a DAG, a mining algorithm has no way to track, notate, or reward you for your mining. But any processor used for mining must have the capacity to support the size of the DAG file – which can be large (Ethereum, for example, is over 4.3GB). Most CPUs don’t have the capacity to support this – GPUs, on the other hand, contain enough memory to support the size of the DAG file.

I primarily mine Ethereum, and my set-up (see below) includes both ASIC miners and rigs with GPUs from NVIDIA which I purchased on eBay. On a day-to-day basis, there is not much to do! My machines run 24/7, and I can access them via remote desktop.

It does cost quite a bit to get started in mining crypto – and it requires a good deal of electricity. Currently, there is also a shortage of GPUs – so they are hard to come by! For anyone who is interested in purchasing equipment for mining, I would recommend that they do a lot of research. It is also worth noting that it can take up to a year to recover the set-up costs.

Tara: What advice do you have for folks who might want to get started in cryptomining? Are there good resources out there for people to learn more?

Amy: Bits Be Trippin’, Red Panda Mining, and Son of a Tech all have YouTube channels that I highly recommend watching – they break down the profitability of coins and the different types of GPUs that are out there.

Another factor that someone needs to consider is which mining pools to join – I have used Nice Hash, Nanopool, and Ethermine. You can always solo mine, but the difficulty for mining a block requires a much higher combined hash rate for all of your GPUs and ASIC miners in order to be successful in solving the block.

One main piece of advice I would give is to spend some time learning about the different cryptocurrencies that are out there. Also worth noting is that to mine, you will need a cryptocurrency wallet to mine to – there are a lot of options out there, and not all of them have the same coins. I personally use quite a few wallets for my crypto, such as Binance.US, Gemini, Coinbase Wallet, and Atomic Wallet. Coinbase is particularly great for beginners because it offers videos for people to watch about specific tokens – and then rewards you in cryptocurrency for watching them!

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The overlooked generation

There’s a puzzle that I’m trying to figure out. Maybe you’ve got some insight and can help me.

When I got started in my career in prospect research, it didn’t take me long to figure out that we were concentrating on people (okay, mostly men) who were in their 40s to 70s. These were the donors who were in their prime earning years or recently retired, finally able to spend their spare time on volunteering and their spare cash on donating.

We didn’t ignore their kids, of course, but since there’s only so much time in the day, it was the Boomers that got the majority of our prospect identification and research attention. It’s just Sutton’s Law.

So, okay, those Boomers are aging out of prime giving now. Most are now fully in retirement mode, so it makes sense that we look to the next generation who are in their prime earning years or recently retired.

In the press (fundraising and general audience), you can’t open a newspaper or magazine without seeing articles like Millennials And Charitable Giving: A New Approach To Philanthropy, How Millennials Are Changing Philanthropy, and How to Appeal to Millennial Supporters.

Which is great.

But that’s not the next generation after the Boomers. Gen Xers are.

Mackenzie Scott’s generation. And Jennifer and David Risher’s. Also Pam and Pierre Omidyar. John and Laura Arnold. And probably at least half of the donors who are giving large gifts to your nonprofit right now. They’re Xers. Not Millennials.

In fact, when you look at the Forbes list of 25 most philanthropic billionaires, there are only two Millennials on that list and they’re married to each other – Zuckerberg and Chan.

 Sure, Boomers and Gen Xers are giving more in terms of dollars ($732 and $1,212 per year, respectively),” writes Justin Wheeler in Forbes, “but at an average of $481 given each year, Millennials are quickly gaining influence over the philanthropic space (source: The Next Generation of American Giving, 2018).

Considering that Millennials earn less than their counterparts did and are often riddled with student debt, years away from owning a car or a home, these numbers are significant. If people become more generous over their lives and are more likely to give if their parents give, Millennials will become the most generous generation in history. One can easily imagine this reaching 95 or even 100 percent by the time they reach midlife.”

So let me get this straight: Boomers and Xers are giving about twice as much per year right now, but we should be paying special attention to this generation that’s riddled with student debt and years away from owning homes? Who graduated college smack in the middle of the Great Recession and then, just as they were getting their feet under them, had to live through another economic tank-a-thon, with a pandemic thrown in for good measure?

Honestly, can we just give them a break for a few years? And (thanks for being patient on my getting to the point here) why exactly is the press (as well as several fundraising conference sessions) focused on Millennials to the exclusion of Gen Xers?

Please don’t misunderstand me. I am not saying that Millennials are not philanthropic and that they don’t volunteer and that they’re not super-involved with nonprofits and/or that we should ignore them.

It just seems that Millennials are the press’s shiny object and, for some reason, despite all of their truly radical global-changing philanthropy we’re not talking about Gen X as the great philanthropic generation they are.

I mean, great Scott, look at them! Melinda Gates is an Xer, too!

According to a report by Fidelity Charitable, Gen Xers volunteer 8 hours on average per month (Millennials 9 and Boomers 6).

57% of Millennials say they give to a broad range of causes, while 63% of Gen X focus their giving on a limited number of nonprofits. Maybe Millennials are still looking for that special cause or two that they want to devote their time to, but what that says to me is, if you have a Gen X donor/volunteer involved with your nonprofit, chances are you will have them for life if you pay attention to them and steward them right.

Also, Gen X donors are more focused on their local communities, according to Fidelity Charitable. So for prospect identification purposes, that provides some helpful geographical focus for you to consider, too.

In prospect development, we have to remember Sutton’s Law. Today’s shiny objects may well be tomorrow’s philanthropists, and, yes, we should always keep our eyes on the periphery and pull it into focus over time. But we need to stay focused on what will work for our nonprofits now, and keep the philanthropic power generation in focus. Because that’s where the money is.

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