The Pooled Income Fund


A pooled income fund is much like a financial institution’s common trust fund. A donor irrevocably transfers appropriate assets to a qualified charitable organization’s separately maintained pooled income fund, where it is invested with the transfers of others who make similar life income gifts.

Each designated income beneficiary receives his or her share of the fund’s income (fully taxable) every year for life. A pooled income fund agreement can provide income for one or more beneficiaries for life (but not a term of years). Note: A pooled income fund requires two or more donors.

On the passing of the last beneficiary entitled to receive income under a particular pooled income fund agreement, assets (equal to the then value of that agreement’s assets in the fund) are removed from the fund and used by the charitable organization for its charitable purposes.

Example: Mrs. Jones’ $10,000 gift is invested in a charity’s pooled income fund. The fund earns 6% this year, so she receives $600—her share of the fund’s earnings. At her passing her life income agreement’s share of the fund’s assets are worth $14,000; that amount is removed from the fund and paid to the charitable organization.

Ideal for Community Foundations

A pooled income fund is an ideal planned giving instrument for a community foundation. Most community foundations have several accounts such as the blind association, girl scouts and the local library.  The community foundation can establish a pooled income fund with one donor from several agencies and at the passing of one of the donors, the individual agency receives that donor’s share in the fund.

A replacement for the Charitable Gifts Annuity

Because of the guaranteed contract nature of a charitable gift annuity, many organizations do not offer a “CGA.” A charitable gift annuity is also a planned giving instrument that attracts small contributions. Therefore, if a nonprofit does not offer a Charitable Gift Annuity a donor of $10,000 to $50,000 has limited options for making a planned gift. The pooled income fund may just be the answer. Gifts in the amount of $5,000 to $50,000 are generally acceptable.

Deductibility

Donors who transfer property (cash or securities) in exchange for a pooled income fund share are entitled to a contributions deduction. For example, if a donor aged 75 transfers $10,000 in assets for which she paid $5,000, she would receive a contribution deduction of $6,681. Additionally, there would not be any capital gain tax liability on the appreciation of the asset.

Contact us for more information on how endowment management, fund raising and planned gifts may benefit your organization.