How Does It Work?
Your gift will purchase shares of an investment pool that functions like a mutual fund. All of the fund’s annual income is allocated proportionately between the pooled income fund participants, depending on the number of shares they hold. You can name yourself and/or other beneficiaries to receive the income from the shares for life. At the end of the income beneficiary’s life, the shares of the fund are withdrawn and used to support the chapter for the purpose you designate.
Benefits
- Receive annual income
- Diversify your investments
- Federal, and possible state, income tax deduction
- Pay no immediate capital gains tax on the transfer of appreciated assets
- Make a gift to the chapter
Fund Options
If you decide to create a pooled income fund at the chapter, you may choose between two options that have different investment strategies:
- The balanced fund seeks regular income for beneficiaries while prioritizing growth of principal for greater future income.
- The long-term income fund seeks a higher rate of current income and modest long-term growth.
- Please note that there is no guaranteed income from these funds since they depend on market performance.
Assets Used
Cash or securities
Advisor
Those considering a planned gift should consult their own legal and tax advisors.
EXAMPLE
John Doe, age 65, has stocks worth $100,000, which he bought for $10,000 and which pay dividends of 2% per year. He would like to sell the stocks and diversify his asset base, but hesitates because the federal capital gains tax would be $13,500. He is in the 35% income tax bracket for ordinary income and the 15% bracket for federal long-term capital gains.
Suppose the chapter’s balanced pooled income fund earns 4% (the actual return varies; current rates are available on request). By making a gift of his stocks to the balanced pool, Mr. Doe doubles his annual earnings and diversifies his assets. In addition, he receives a charitable income tax deduction of about $52,850 (based on an IRS discount rate of 1.2%), saving roughly $18,500 in income tax, and he avoids $13,500 in federal capital gains tax. When Mr. Doe dies, the shares that his original gift “bought” in the pooled income fund will be withdrawn to establish a fund bearing his name.
Learn how you can support your chapter by contacting Matt Noble of Fraternity Management Group at matt.noble@fmgtucson.com.