Financial Matters
January 2012
Ways to Help Yourself and Others

In our December Circuit Rider, we described efficient ways to gift cash / checks to the Church so as to be able to possibly itemize these as charitable deductions. We would like to continue this month by offering an additional idea for you to contemplate; pooled income funds. As previously mentioned, these ideas are meant to offer mechanisms by which one can achieve certain financial advantages, possible tax advantages, and help our Church at the same time. As everyone’s financial situation is unique, please consult your tax advisor.

Pooled Income Fund – Some people may have low cost basis stock that they have held more than one year, but still need the income it generates for living expenses.

There are many entities that administer pooled income funds, one such fiduciary is Fidelity. While the minimum initial transaction with Fidelity is $20,000, the mechanism works like this. A person has low cost basis stock, that if sold would result in possibly considerable capital gains, and / or some people find themselves holding disproportionately large positions of such low cost basis stock. (Recall that for 2011 and 2012, if a tax filer is in the 15% top marginal income tax bracket or below, the capital gains tax rate is zero. Selling of such stock would result in a reportable gain that would count towards the reportable income in a certain tax bracket and therefore has to be considered in determining in which top marginal bracket you fall.) They feel they can not sell the stock to diversify risk (due to the capital gains tax that may result); besides, they need the dividend income the stock generates. In this scenario, the stock is contributed in kind to the pooled income fund by reregistering its ownership to the fund. At that time, the contributor names a charity or charities to receive what is left over upon their demise. The contributor can name St Paul's.

Upon completion of the transfer, the contributor gets a tax deduction, depending upon their age – the older an individual is, the higher the current deduction. By way of example, a 70 year old would receive a charitable deduction of 55.608% of their contribution. The contributor also receives a stream of income for life at a target rate of approximately 5% of the value contributed. This may actually improve ones cash flow. Often, the term can be defined as either your life solely, or that of your life and then your spouse’s. This rate has remained rather consistent and steady, and may be an improvement over what the contributor had been receiving in income up until then. (The actual current rate quoted to me was 5.095%). The 5% annual amount is paid to the contributor in quarterly installments, and would be taxed as ordinary income. The fund sells the contributed investment upon receipt, reinvests the amount, and pays the contributor the 5% target rate. Whatever the amount has grown to over the contributor’s life is what the Church receives upon the contributor’s demise.

If you have questions, or would like to discuss this in further detail, please feel free to contact Pete Buckley, Finance Chairman, Rich Dworzak, or the Church office. Rest assured that any inquiries will be treated with tact and confidentiality. As with anything of a financial nature, consult your tax advisor as well.