Pooled Income Fund
Summary of Gift Plan
The donor irrevocably contributes cash or securities to an organization's pooled income fund, where it is invested and commingled with gifts made by other contributors. Participants receive a pro-rata share of the fund's annual earnings until death, when the charity removes the donor's gift from the fund.
Income Tax Deduction
The present value of the remainder interest in the amount transferred is deductible, based on the ages of the beneficiaries and the fund's highest payout rate for the last three years. Funds less than three years old assume the payout rate tied to §7520 average rates for the prior three years.
Capital Gains Consequences
No capital gains are recognized upon the transfer of appreciated assets to a pooled income fund. Capital gains allocated to the principal are deductible by the pooled income fund.
Federal Taxation
A pooled income fund is a taxable trust but is not taxed on long-term capital gains added to the principal. Income received by beneficiaries is generally reportable as ordinary income (any dividend income is currently taxed at the maximum 15% rate).
Transfer Taxes
In general, the same rules apply as with charitable remainder trusts. There is no gift tax liability where the donor and/or the donor's spouse are the sole income beneficiaries; at the donor's death, the spouse's income interest is a qualified terminable interest and qualifies for the marital deduction, but a QTIP election must be made.
Tax Returns
Donors must file gift tax returns in all cases and Form 8283 where gifts are funded with noncash assets. Trustees must file Forms 1041 and 5227 and 4720 if the trust is liable for excise taxes.
Best Funding Assets
Appreciated securities, generally, and cash are best. Tax-exempt securities may not be contributed, and most charities will not accept real estate gifts in their pooled income funds.
Special Considerations
Pooled income funds commonly accept gifts as low as $5,000 and offer a hedge against inflation and capital gains tax avoidance that may appeal to younger donors or beneficiaries.
The donor irrevocably contributes cash or securities to an organization's pooled income fund, where it is invested and commingled with gifts made by other contributors. Participants receive a pro-rata share of the fund's annual earnings until death, when the charity removes the donor's gift from the fund.
Income Tax Deduction
The present value of the remainder interest in the amount transferred is deductible, based on the ages of the beneficiaries and the fund's highest payout rate for the last three years. Funds less than three years old assume the payout rate tied to §7520 average rates for the prior three years.
Capital Gains Consequences
No capital gains are recognized upon the transfer of appreciated assets to a pooled income fund. Capital gains allocated to the principal are deductible by the pooled income fund.
Federal Taxation
A pooled income fund is a taxable trust but is not taxed on long-term capital gains added to the principal. Income received by beneficiaries is generally reportable as ordinary income (any dividend income is currently taxed at the maximum 15% rate).
Transfer Taxes
In general, the same rules apply as with charitable remainder trusts. There is no gift tax liability where the donor and/or the donor's spouse are the sole income beneficiaries; at the donor's death, the spouse's income interest is a qualified terminable interest and qualifies for the marital deduction, but a QTIP election must be made.
Tax Returns
Donors must file gift tax returns in all cases and Form 8283 where gifts are funded with noncash assets. Trustees must file Forms 1041 and 5227 and 4720 if the trust is liable for excise taxes.
Best Funding Assets
Appreciated securities, generally, and cash are best. Tax-exempt securities may not be contributed, and most charities will not accept real estate gifts in their pooled income funds.
Special Considerations
Pooled income funds commonly accept gifts as low as $5,000 and offer a hedge against inflation and capital gains tax avoidance that may appeal to younger donors or beneficiaries.
