Pooled Income Fund

  • 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

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.

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:

Donor Individual, age 65
Amount contributed $50,000
Cost basis $20,000
Current dividend income $1,000
Fund’s rate of return 5%
Annual income $2,500 (variable)
Charitable deduction $11,814
Increased annual income $1,500 ($2,500 from Fund vs. $1,000 dividend)
Capital gain avoided $30,000

Click here to calculate the benefits the Pooled Income Fund would give you.

 

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.