Pooled Income Fund

What Is a Pooled Income Fund?

A pooled income fund is a type of charitable trust. A pooled income fund is a 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. Upon your death, the value of the assets will be transferred to the beneficiaries.

Understanding a 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 because 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: ensure a perpetual income, claim a current tax deduction, and 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.

Special Considerations

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.