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Pooled Income Fund

Pooled Income Funds - You got to know when to hold 'em, know when to fold 'em

So, you have a pooled income fund (PIF). How’s your fund doing? We hear a variety of stories from our clients. Some clients have PIFs that are doing well, but many others are looking for ways to close their PIF.

Once upon a time, when PIFs were in favor, their attraction was in their relative simplicity compared to charitable remainder trusts. No trust document was needed because it was already in place; the documentation was a simple one or two page Instrument of Transfer. A second advantage of the PIF was the relatively low cost of administration. Charitable remainder trusts require the creation the filing of tax and informational returns for each individual trust. In contrast, the charity was required to file only one set of returns for a PIF, regardless of the number of participants. The reporting requirements to the participants involved a relatively simple Schedule K-1. A third advantage of PIFs was that they could accept smaller contributions than charitable remainder trusts. These features made the PIF arguably the most popular form of life income gift in the 1980s and early 1990s.

Oh, how times have changed!

Calculation of Pooled Fund Yearly Rate of Return

The deduction for a gift to most pooled income funds must be computed using the fund's highest yearly rate of return of the past three years. The fund must have three or more taxable years of experience for this rule to apply. Deduction calculations for gifts to young funds that have less than three taxable years of experience use a rate mandated by the IRS.

Valuation Rate for a Pooled Income Fund

The valuation rate is the interest rate used to determine the charitable deduction available for gifts to a pooled income fund in a particular year.

Remainderman

The remainderman is the recipient of a trust's proceeds when the trust terminates.

In the context of planned giving, remainderman usually refers to the charity that will receive the final distribution from a charitable remainder trust or pooled income fund. Technically speaking, gift annuity and retained life estate gifts do not have a remainderman because the charity takes possession of the gift assets immediately.

Remainder Factor

The remainder factor is the fraction of the funding amount of a planned gift that is considered a charitable contribution, expressed as a decimal. The remainder factor multiplied by the funding amount equals the value of the charitable contribution.

For example, if the remainder factor for a charitable remainder unitrust is .24561 and the unitrust is funded with $100,000, the value of the charitable contribution is .24561 x $100,000 or $24,561.

Pooled Income Fund Yearly Rate of Return

The deduction computation for a gift to a pooled income fund depends on the fund's valuation rate.  This valuation rate, in turn, is determined by the fund's historic yearly rate of return once the fund is three or more taxable years old.  The valuation rate for a gift equals the highest of the fund's yearly rates of return in each of the three calendar years prior to the gift.

The valuation rate for a fund that is less than three taxable years old is mandated by the IRS and is based on the average of the monthly IRS discount rate over the past three calendar years.

Pooled Income Fund

A pooled income fund ("fund") is a gift plan defined by federal tax law that allows a donor to provide income to herself or others for life while making a generous gift to charity.

Massachusetts 2-G

The Massachusetts 2-G is a Massachusetts state tax form for reporting income, deductions, credits, etc. of a grantor-type trust.  Massachusetts charities report pooled fund income to their Massachusetts participants on this form.

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