This time of year many of us are collecting thank you letters from our favorite charities after making a donation during the previous year. These donations were and are a combination of the spirit of giving as well as the desire to secure additional tax deductions. In a previous post we discussed the Charitable Remainder Trust (CRT), an excellent vehicle for some to meet both of the above priorities while maintaining an income stream from the donation. In this post we will share information regarding another option that may have even greater flexibility -- making it available to a wider range of donor-investors, as well as providing some additional ways of supporting a charitable cause.
Pooled Income Funds
The Pooled Income Fund (PIF), as its name implies, allows multiple donors to “pool” their resources in a fund that is then invested and managed by a fund management team for the purpose of appreciating assets and generating income for the investors proportional to their contribution as a portion of the whole of the fund. If that sounds like a charitable mutual fund, in essence, it is in fact just that, with certain additional stipulations. A PIF is a fund maintained by a qualified non-profit and typically operated by a third-party professional fund management organization. Monies invested in the fund by a donor generate an income which is distributed yearly to the designated recipient or recipients, (more on that in a moment). At the conclusion of the recipient’s life, the remainder of the investment rolls over to the charity. Hence PIF’s are often referred to as charitable remainder mutual funds.
Flexibility Regarding Investment
Charitable Remainder Trusts are normally established from high value, highly appreciated assets of more wealthy donors. While PIF’s are also open to that level of investment, they can also accommodate a more modest investment, even cash, and create a larger tax deduction up front than a Chartiable Remainder Trust.
Flexibility Regarding Income Distribution
Donors can specify themselves, or any other living soul as a recipient, or any combination of individuals. The annual income distributions will continue until the last recipient is deceased. If income is paid to more than one income beneficiary, it can be paid concurrently, consecutively, or both concurrently and consecutively (joint and survivor). In addition, the donor can specify the charity as one of the recipients.
The tax advantages to the donor vary dependent upon such factors as their age, life expectancy and the nature of the asset that was liquidated for the purpose of a pooled investment. They can include a tax deduction for charitable contributions as well as avoidance of capital gains tax on appreciated assets and avoidance of estate tax where applicable. As mentioned, additional gifts can be made yearly to accrue needed tax deductions, and the donor does not need to incur the cost of establishing a trust as in the case of a CRT.
All of which makes a PIF another valuable means of donors and charities working together in service to the community. If a PIF sounds like an option for you, contact us at 515.225.6000. Our team of Certified Financial Planners is happy to answer any questions.