A pooled income fund is a charitable trust that pays donors an income stream and then gives the remainder to charity. If you are interested in charitable giving as part of your long-term estate plan, consider a pooled income fund as one of your options.
How Does a Pooled Income Fund Work?
If you donate to a pooled income fund, you give assets to a charitable trust. The assets stay in trust for a while, and the trustee invests them. You receive payouts consisting of any income that the assets earn. The income stream lasts until you and all the other fund contributors pass away. Then, a specific charity or charities receive the remaining trust assets.
A pooled income fund gets its name because many people invest in the fund. The amounts of your payouts depend on how many assets you contribute. You can contribute cash, stocks, mutual funds, and other liquid assets. While some pooled income funds may accept real estate, art, life insurance, or restricted securities, most do not.
As described below, pooled income funds offer significant tax advantages. You lose, however, control over the assets you contribute, control over investment strategy, and ability to support charities during your lifetime with those assets.
What Are the Tax Implications of Investing in a Pooled Income Fund?
When you invest in a pooled income fund, you receive a few tax benefits:
- Immediate income tax deduction based on the value of assets you contribute, the fund’s rate of return, and the beneficiary’s age
- Reduction in the size of your taxable estate for IRS estate tax purposes
- Possible avoidance of capital gains taxes and another tax deduction (both available only if you donate long-term appreciated securities)
However, you will pay ordinary income taxes on the payouts you receive from the fund. To find out more about pooled income funds, talk to your estate planning lawyer about charitable giving as part of your estate plan.
Planning your estate and interested in charitable giving? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.