Pooled Income Fund
Key Characteristics and Benefits
- Lifetime of passive and/or portfolio income
- Involve your current investment advisor*
- “Total return” investment policy
- Allows portfolio to be personally tailored to regularly meet your income needs
- Can produce lifetime income for successive generations of family members
- Principal supports your favorite charities or your family foundation, if established as a Donor Advised Fund
- Avoid capital gains taxes on the gift of most appreciated capital assets
- Maximum tax benefits
*Your investment advisor must be actively licensed and in current good standing with the appropriate regulatory authorities
IRC §642(c)(5) defines a pooled income fund as a trust that is established and maintained by a public charity. The pooled income fund receives contributions from individual donors that are commingled for investment purposes within the fund. Each donor is assigned “units of participation” in the fund that are based on the relationship of their contribution to the overall value of the fund at the time of contribution.
Each year, the fund’s entire net investment income is distributed to fund participants according to their units of participation. Income distributions are made to each participant for their lifetime. Once the participants income interest terminates, the remaining assets are distributed to Stewardship Counsel, where you will have the following options to establish your personally structured philanthropic legacy:
- Endowment – You can establish an Endowment to perpetually support your favorite charities / ministries;
- Designated Charity Fund – You can designate specific charities / ministries to support; or
- Donor Advised Fund – Your family legacy can be continued through the Donor Advised Fund program of your choosing.
Contributions to pooled income funds qualify for charitable income, gift, and estate tax deduction purposes. The donor’s deduction is based on the discounted present value of the remainder interest. Donors can also avoid recognition of capital gain on the transfer of appreciated property to the fund.
Investment Management and Account Transparency
If you decide to create a pooled income fund with Stewardship Counsel, you can have your favorite investment advisor customize and manage an investment portfolio best tailored to regularly meet your income needs.
Because your investment advisor will also be managing your Charitable Pooled Trust (Pooled Income Fund), your Trust account balance and performance can be readily accessed and reviewed, along with your other investments, through your investment advisor.
This Might Interest You If You Would Like To Reduce Your Taxes By Supporting Your Favorite Charities Or Family Foundation (Donor Advised Fund), and You…
- Want to receive passive and/or portfolio income regularly for life
- Desire to tax efficiently convert low or no income investments to a lifetime income stream
- Have a large part of your portfolio in one company and want to tax efficiently diversify your investments
- Would like to avoid the recognition of capital gain upon the sale of certain appreciated capital assets
- Are facing significant income taxes and desire to reduce your current tax situation
EXAMPLE: Charitable Pooled Trust (Pooled Income Fund)
Peter Montgomery and his wife Andrea, age 65, have stock worth $100,000, which they bought for $10,000 and which pay dividends of 2% per year. They would like to sell the stock and diversify their asset base, but hesitates because the federal capital gains tax would be $13,500. They are in the 35% income tax bracket for ordinary income and the 15% bracket for federal long-term capital gains.
Suppose their investment advisor produces a total return of 4%. By making a gift of their stock to their Charitable Pooled Trust (Pooled Income Fund), the Montgomery’s double their annual earnings and diversify their assets. In addition, they receive a charitable income tax deduction of about $76,467 (based on an IRS discount rate of 1.2%), saving roughly $26,763 in income tax, and avoid $13,500 in federal capital gains tax. When Peter and Andrea pass, the principal from their contribution(s) to their Charitable Pooled Trust will be used to establish their personally structured philanthropic legacy through Stewardship Counsel.
If you are interested in learning more about Stewardship Counsel’s Charitable Pooled Trust (Pooled Income Fund), please contact us and we will be happy to provide a customized illustration, our disclosure statement and/or a copy of your customized Charitable Pooled Trust agreement. You should always consult with your own legal and tax advisors before establishing.