Protection of assets is critical right now, especially with moves to increase taxes on endowments, reducing or eliminating funding outright or targeting certain organizations based on who they serve. As a results, number of clients have reached out regarding administrative moves they intend to make in the wake of federal funding cuts. Some have voiced concern that their organization could be targeted based on who they serve. In the course of our conversations a number of pro-active moves have surfaced. Some of the strategies are more involved than others but in all a quick overview of a view thoughts that have surfaced may be useful for others considering protecting their assets.
Just a quick note on semantics. The term ‘the government’ is specifically referencing federal entities or initiatives (or perhaps even individuals) tasked with the purpose of identifying funds which the government deems unnecessary.
Separate corporate entity
Probably the most basic and realistic move it to establish a separate 501c3. The separate entity may or may not need to be affiliated with the originating entity, but it allows the clear separation of funds which may be at-risk should the government attempt to pull funding back. You can also use the separate entity to fund services which may raise attention of the government.
Some important things to consider here:
-establish independent governance structures, clear policies for inter-organization transactions, transparent communication protocols, and regular third-party reviews of the relationship. Legal counsel experienced in nonprofit law should help structure these relationships appropriately from the outset.
-if the organizations are related (shared board members, common control, etc.), extra scrutiny applies to ensure the transfer serves legitimate charitable purposes rather than benefiting insiders.
Decentralized Autonomous Organizations
Decentralized Autonomous Organizations (DAOs) gained popularity at the onset of the Russian invasion of Ukraine. DAOs allow donors to contribute directly to individuals, without a corporate or non-profit entity. Collectively governed and financed, DAOs have no official anchor organization as do non-profits which must be registered with the state and federal government.
Individuals can donate through a DAO using bitcoin or other blockchain-based currency. As usual, federal regulations are years behind the development of this type of collective nonetheless with the movement of the stablecoin legislation at the federal level and the increased openness to cryptocurrency from the current administration, it’s likely that DAOs will continue to experience tailwinds in development.
DAOs are managed by the members, with funds directed through collective decisions. In order to receive funds from a DAO, individuals only need access to an electronic platform (Coinbase, Venmo or others) which allow for the receipt of cryptocurrency.
Migrate funds onto the blockchain
Lastly, in-lieu of setting up an entirely new organization, considering leveraging the evolving power of the blockchain to support the most vulnerable of your constituents. This step should only be taken with unrestricted funds, ideally provided by a willing and informed donor.
Using a platform such as Coinbase or Venmo, start by purchasing a stablecoin such as USDC which can then be converted into any number of cryptocurrencies. Funds can then be sent directly to an individual, provided they can receive currency via an app. The tools can be useful as you start to channel donations to difficult-to-reach populations or those in survive in secrecy, such as refugees or victims of abuse or human trafficking.