The BSA’s Pooled Income Fund is often described as a charitable mutual fund. It represents the gifts of many donors to Scouting that are managed and invested as a group. It is possible to join in the BSA Pooled Fund with an initial gift of only $5,000 in cash, stocks, or bonds (additional gifts to the fund only require a minimum of $1,000). As with other charitable gifts, a donor receives an immediate income tax deduction for the gift and avoids owing any capital gains tax on appreciated securities given to the pooled fund.
Income is paid for one or two lifetimes to anyone chosen by the donor (as long as they are at least 40 years of age at the time of the gift). The income often varies, depending on the actual investment return of the funds portfolio. All earnings are distributed quarterly based on the units of participation held by each beneficiary. At the end of a beneficiarys lifetime, the amount of the original gift is removed from the fund and distributed to the donors council of choice.
Example: A couple, ages 68 and 67, decide to make a $20,000 gift of highly appreciated stock to the pooled income fund. It has a basis of only $5,000 and they currently get 2% dividend income from the stock. After the gift, they get an income tax deduction of $6,400. Also, the current fund earnings will more than triple their annual income from the stock. They owe no capital gains tax on the stocks appreciation, and they have removed an asset from their taxable estate (possibly saving probate costs and estate tax).
The income from a pooled fund is taxable. However, pooled funds may also protect against inflation, since the income will increase as the portfolio income increases. Also, you receive income based on the full value of the gift not possible if you, instead, sold your highly appreciated property, paid the capital gains tax, and could only reinvest the after-tax proceeds.
- As with other income producing gifts, there may be gift tax implications if income payments go to anyone other than the donor and/or donors spouse.