Primer on Pooled Income Funds
What Are Pooled Income Funds?
Pooled Income Funds are a very flexible way to make a charitable gift. They provide flexible income for life for you and/or others you choose. They are easy to create and can be funded with gifts of relatively modest amounts. Additional contributions can be made to the fund at any time.
With a pooled income fund (PIF), a number of donors make contributions to a common fund over time. The assets in the fund are often invested for a balanced return of income and growth over time. Each year, a pro rata share of the earnings of the trust is returned to each participant.
The Benefits of Pooled Income Funds
As in the case of a charitable gift annuity, participation in a PIF can usually begin with a relatively modest amount. Charities will typically have established minimums.
An immediate income tax charitable deduction is allowed for a portion of the value of the amount contributed to the pooled income fund. Capital gains tax that would be due on a sale of assets that have increased in value and are contributed to the PIF may be entirely avoided. Assets used to fund your contribution can also be removed from your estate for state and/or federal tax purposes.
Other benefits include:
- Funds can consist of a wide range of assets such as cash, stocks, cryptocurrency, some privately held stocks and life insurance, among others.
- Donors and beneficiaries may receive income distributions.
- A trustee assumes responsibility for managing the fund, so the donor does not have to.
The Nonprofit’s Role
Accepting PIFs allows nonprofits to secure long-term capital, increase planned giving and build stronger donor relationships, while donors receive lifetime income, immediate tax deductions and avoid capital gains taxes. PIFs act as philanthropic pools managed by the charity, fostering donor loyalty through regular income distributions until distribution to the final participant.
However, it is important to be aware of some limitations for both the donor and the charity.
- Income distributions are considered taxable income and may be subject to the 3.8% net investment tax.
- Contributions to PIFs are irrevocable.
- Donors are often unable to choose how their contributions are invested.
- Income distribution amounts may fluctuate from year to year.
- The charity will not receive the funds until after the death of the donor.
Helpful Tools:
- Sharpe Data
Append age, wealth, gender, marital status and other important data to your files.
- Sharpe Planned Giving Websites
Provide a planned giving microsite to help your donors learn how to give through retirement plans.