Contents

FUNDAMENTALS OF PLANNED GIVINGunder which a remainder interest is contributed to charity and the income is paidover to noncharitable beneficiaries. As the name reflects, however, the pooledincome fund involves a pool of gifts rather than gifts from a single source.(a) General RulesA donor to a qualified pooled income fund 21 receives a charitable contributiondeduction for the gift to a charitable organization of the remainder interest in thedonated property. By the transaction, income interests in one or more noncharitablebeneficiaries are created, with the remainder interest in the gift propertydesignated for the charity that maintains the fund.The pooled income fund basic instrument (trust agreement or declaration oftrust) is written to facilitate gifts from an unlimited number of donors; thus, theessential terms of the transaction are established in advance for all participants.That is, there is no tailoring of the terms of the transfer to fit any one donor’sparticular circumstances (as is the case, for example, with the charitable remaindertrust). The pooled income fund is, literally, a pooling of gifts. These gifts maybe of a considerably lesser amount than those to a charitable remainder trust,and are generally confined to cash and readily marketable securities (other thantax-exempt bonds).A pooled income fund receives gifts from a number of donors, with eachdonor contributing an irrevocable remainder interest in the gift property to orfor the use of an eligible charity. Each donor creates an income interest for thelife of one or more beneficiaries, who must be living at the time of the transfer.The properties transferred by the donors must be commingled in the fund (tocreate the necessary pool).Each income interest beneficiary must receive income at least once each year,determined by the rate of return earned by the fund for the year. Beneficiariesreceive their proportionate share of the fund’s income. The income share isbased on the number of units owned by the beneficiary in the fund; each unitmust be based on the fair market value of the assets when transferred.Thus, a pooled income fund is essentially an investment vehicle, the fundingof which is motivated by charitable intents. The operation of the fund is similarto the operation of a mutual fund. There are, however, three important exceptions.First, the capital in a pooled income fund is held by the trustee(s) (whichmay be, or include, the charity involved) and cannot be sold or redeemed by adonor or an income beneficiary. Second, realized capital gains are reinvested asadditions to principal and are not distributed to a donor or an income beneficiary.Third, upon termination of all designated income interests, the full valueof the units assigned to an item of gift property are transferred to or retained forthe benefit of the charity involved.A pooled income fund must be maintained by one or more charitable organizations.This maintenance requirement means that the charity must exercise controlover the fund; the organization does not have to be the trustee of the fund(although it can be), but it must have the power to remove and replace the21 IRC § 642(c)(5). 156