DEFINITION of 'Pooled Income Fund'

A pooled income fund is a type of charitable trust. It is a type of mutual fund composed of gifts that are pooled and invested together. Income from the fund is distributed to both the fund's participants and named beneficiaries according to their share of the fund. If you are a donor to the fund, you choose the other income recipients to receive quarterly payments for life, and upon your death, the value of the assets will be transferred to the beneficiaries.

BREAKING DOWN 'Pooled Income Fund'

A pooled income fund is a type of charitable trust that gets its name from the fact that contributors’ resources are pooled for investing purposes. There is no collaboration among donors. The funds are not distributed to charity until after the donor is deceased.

A pooled income fund differs from a giving circle in that it allows the designated beneficiaries to receive regular income distributions for life. The amount of income received varies and depends on the performance of the investments held by the trust. The fund takes into account IRS life expectancy tables and the fair market value of the assets at the time of the transfer to determine income distribution amounts.

A pooled income fund allows you to do three things: 1) ensure a perpetual income; 2) claim a current tax deduction; and 3) make a future gift to charity.

For example, say you own stock with a value of $50,000. Then you donate the stock to the pooled income fund to eventually fund scholarships for underprivileged students and reserve for yourself an income interest for life. In the transfer of stock to the fund, you do not recognize a capital gain on the appreciated value since the original purchase, so you avoid the capital gains tax. You will also receive a charitable deduction for the year you enter the pool, lowering your taxes.

Acceptable Contributions to a Pooled Income Fund

Generally, you can contribute any liquid asset to a pooled income fund. Commonly used assets include:

  • Cash
  • Stocks
  • Mutual funds

Some pooled income funds may also permit donations of other types of assets. These less common current assets include:

  • Certain restricted securities or privately held stocks
  • Noncash assets such as life insurance
  • Tangible property such as fine art, automobiles or real estate
  • Tax-exempt securities
  • Bitcoin

Tax Benefits of a Pooled Income Fund

Assets contributed to the fund qualify for an immediate income-tax deduction. The amount of the deduction depends on the gift's fair market value, the beneficiary or beneficiaries' age and the fund's rate of return.

Assets contributed to a pooled income fund are also removed from the value of the estate, which could help limit the effect of applicable federal estate taxes. This also means that assets in a pooled income fund avoid probate. Donors will know precisely where the fund's remaining balance goes—to a select charity or set of charities.

  1. Pooled Funds

    Pooled funds aggregate capital from a number of investors, as ...
  2. Commodity Pool

    A commodity pool is a private investment structure that combines ...
  3. Whole Pool

    A whole pool is an undivided interest in a group of mortgages ...
  4. Multinational Pooling

    Multinational pooling is a method global companies use to manage ...
  5. Jumbo Pool

    A jumbo pool is a mortgage-backed security that is collateralized ...
  6. Blind Pool

    A blind pool is a direct participation program or limited partnership ...
Related Articles
  1. Tech

    How to Choose a Cryptocurrency Mining Pool

    Here are some selection criteria cryptocurrency miners should consider before joining a crypto mining pool.
  2. Tech

    How Do Cryptocurrency Mining Pools Work?

    Here's how cryptocurrency mining pools work.
  3. Taxes

    5 Reasons to Give to a Donor Advised Fund

    Investors who are charitably inclined should consider giving to a donor advised fund for these five reasons.
  4. Insights

    An Introduction to Dark Pools

    Dark pools are an ominous-sounding term for private exchanges or forums for trading securities; unlike stock exchanges, dark pools are not accessible by the investing public.
  5. Insurance

    Using Life Insurance to Make Charitable Donations

    Find out how your life insurance policy can be a great tool for charitable giving.
  6. Retirement

    Guiding Clients on Charitable Remainder Trusts

    Clients who wish to make donations to charity can reap an enormous tax deduction with charitable remainder trusts, but it must be set up correctly.
  7. Retirement

    How to Minimize Estate Taxes via Charitable Giving

    Here are several ways to reduce your taxable estate while providing a gift to a worthwhile cause.
  8. Financial Advisor

    A Primer on Philanthropic Vehicles

    Philanthropy and charitable giving are important to many of your clients and this is an area where you can differentiate yourself as an advisor. Helping clients meet these goals is not only the ...
Trading Center