A Life Income Fund (LIF) is a type of charitable gift arrangement used in fundraising, allowing donors to make a significant contribution to a nonprofit while still receiving income from that asset during their lifetime. This arrangement typically consists of an irrevocable trust where the donor transfers assets, such as cash or securities, to the nonprofit. In return, the donor receives regular income payments, which may be fixed or variable, for a set period or for their lifetime. After the donor’s passing, the remaining principal is distributed to the charity for its purposes. LIFs offer tax advantages such as an immediate charitable deduction and reduced capital gains taxes, making them an attractive option for donors seeking income, tax benefits, and philanthropic impact.
In reality, while the structure may seem complex, many nonprofits offer assistance and educational resources to help navigate the setup process. Additionally, LIFs can benefit a wider range of individuals than commonly perceived, not just the wealthy.
Donors typically receive an immediate charitable deduction for the present value of the remainder interest that will go to the charity. Additionally, capital gains tax may be minimized since the property transferred may not be sold, allowing it to grow within the fund.
Unlike a charitable remainder trust, a Life Income Fund is specifically designed for recipients to receive income for life before the remainder goes to charity. It also has simpler administrative requirements compared to some other life-income arrangements.
Generally, any individual can establish a Life Income Fund, but it is usually most beneficial for those with a significant amount of assets to transfer and those looking for consistent income during retirement.