Pooled Income Fund
The Metropolitan Opera’s pooled income fund is a preferred option for donors who would like to make a tax-deductible gift to the Met but want income. It is especially appealing to donors with appreciated securities because they may avoid capital gains tax. The pooled income fund operates similarly to a mutual fund, and is managed as a “balanced fund” with investments designed to produce current income return consistent with prudent investment risk.
To make a gift, you sign a pooled income fund agreement and transfer cash or publicly traded stocks or bonds to the fund. If you donate appreciated securities, you can avoid capital gains tax on the appreciation. Your gift purchases “units” in the fund based on the fair market value of your gift and the current market value of fund units. Income is distributed to beneficiaries for life, based on their number of units. Upon termination, the value of your units will be distributed to the Met and can benefit any program you choose, including the Met’s endowment.
George and Mary Carlson purchased a growth stock for $20,000 ten years ago. It is now worth $100,000, but the annual dividends are only $2,000. They are both 65 years old and want to augment their retirement income. They donated this stock to the Met’s pooled income fund, which had a payout rate of approximately 3.4% as of December 2013.
Assuming that rate, in the first year they could receive quarterly payments totaling $3,400—nearly twice the dividends they had been getting. These payments could increase over time if the assets of the pooled income fund grow in value and generate more income. Moreover, George and Mary will avoid tax on their profit in the stock, and can claim an income tax charitable deduction of about $47,000 in 2014. In their 24% tax bracket, this will save them more than $11,280 on their federal tax return.
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This publication was prepared by Pentera Inc., an Indiana business corporation, which is independent of the Met. Pentera is solely responsible for its content, and the Met disclaims all liability. The information is intended to introduce certain concepts, and we caution you not to rely on it for any legal, tax, or other purpose. You should obtain the advice of your own legal and tax advisors before making any gift.
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