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You’re considering a lifetime gift in partnership with your favorite charity > Your planning objective is increased income > Your preference is a variable income payout
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A Pooled Income Fund is one of the
easiest ways to provide income for yourself or
others while also making a generous gift to the
charity of your choice. Pooled income funds operate
like a charitable mutual fund. Your gift of cash
or securities is combined for investment purposes
with gifts from other donors. Each quarter the
pooled income fund pays you your proportional
share of its net income. When you or the last
of your income beneficiaries dies, your portion
of the fund’s principal is removed and used
by your charity for the purpose you designated
when you made your gift.
Here are some of the benefits of
a pooled income fund:
- If you
contribute appreciated securities to a pooled
income fund, no capital gains tax is payable.
You can contribute appreciated but low-yielding
assets and put the entire amount of your gift
to work earning income for you.
- You will
also receive a charitable income tax deduction
for your gift to a pooled income fund, based
on the fair market value of the assets you contributed
minus the present value of the life-income interest
you retained.
- You can
benefit from the professional investment management
of your favorite charity and its advisors.
- Your
donation can diversify your portfolio if you
are too concentrated in one asset.
- It is
easy to join a pooled income fund – a simple
transfer agreement prepared by your charity
effects the transaction.
- You can
join most pooled income funds with a gift of
$5,000 to $10,000. Additional contributions
are welcomed, usually in increments of $1,000
or more. Pooled income funds bring the benefits
of a life-income gift into reach for many donors.
- Your
charity will give you gift credit for the remainder
value of your contribution to its pooled income
fund – the same amount as your charitable
deduction, explained above.
Your quarterly distribution will vary with the performance of the pooled income fund. Most funds are invested for income and modest capital appreciation, with preservation of capital in mind. Your charity will give you the annual report of its pooled income fund, describing past performance and current objectives of the fund.
All payments from a pooled income fund are taxed to you as ordinary income.
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Example
At 65, you are an active volunteer in your community, still play tennis and golf, and invest for long-term growth. The bulk of your portfolio is Westinghouse stock that you acquired during your years with the company, and, although you are concerned that you are too concentrated in this one holding, you are reluctant to pay the capital gains cost of selling and reinvesting.
You want to support your favorite charity with a gift of $50,000.
You want to retain the income stream you enjoy from your stocks, so you decide to make a $50,000 contribution to the charity's pooled income fund. You use some of your Westinghouse stock to make the gift.
Here is a summary of your income and tax benefits:
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Donor
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Individual, age 65
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Amount contributed
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$50,000
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Cost basis
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$20,000
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Current dividend income
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$1,000
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Fund’s rate of return
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5%
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Annual income
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$2,500 (variable)
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Click here
to
calculate the
benefits the
Pooled Income Fund
would give you.
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Charitable deduction
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$11,814
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Increased annual income
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$1,500 ($2,500 from Fund vs. $1,000 dividend)
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Capital gain avoided
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$30,000
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Tips on Making a Gift to a Pooled Income Fund:
You should consult with an attorney expert in the area of charitable gifts and estate planning. The charity will provide a draft of its pooled income fund transfer agreement for review by you and your attorney, and will help you transfer cash or securities when you make your gift.
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