Pooled Income Funds
In a pooled income fund, your contribution is commingled with other gifts into a common investment pool.
Units are assigned to the named beneficiaries, based on the market value of the gift on the date it is donated. The pool is invested and a pro-rata share of income earned by the pool is distributed to each income beneficiary. Beneficiaries of a pooled income fund will receive their proportionate share of the income from the fund for life.
Whitman College maintains one open pooled income fund with an investment goal of seeking to maximize income for beneficiaries. After the death of a beneficiary, the proportionate share is withdrawn from the fund and is then available for use by the college. Contributions to pooled income funds result in charitable deductions equal to the gift’s remainder value to the charity, subject to IRS 30percent/50percent limitations.
Mr. Jones, age 65, is in the 35 and 15 percent federal income tax brackets for ordinary income and long-term capital gains. He has stocks worth $100,000, which he bought for $10,000 and which pay dividends of 2 percent per year. He would like to sell the stocks and diversify his asset base but hesitates because of the federal capital gains tax of $13,500 that would be incurred.
Suppose Whitman's pooled income fund earns 4 percent (the actual annual return varies; the current rate will be furnished upon request). By making a gift of the stocks to Whitman's pool, Mr. Jones doubles his annual earnings and achieves his objective of diversifying his asset base. In addition, he receives a charitable income tax deduction of about $54,000 (based on an IRS discount rate of 5.8 percent), saving roughly $18,900 in income tax, and he avoids $13,500 in federal capital gains taxes. His net cost of establishing a $100,000 life income fund, as opposed to selling the stock and reinvesting the net proceeds, is approximately $67,600.