A pooled income fund (PIF) is similar in many respects to a charitable remainder trust. The donor receives income for his or her lifetime, with remainder to charity. The unique aspect of the PIF is that it allows investments to be combined or "pooled" with the gifts of other PIF donors.
Pooled Income Fund Description
There are several basic requirements for a PIF. The PIF requires that donors transfer property with the remainder irrevocably committed to a Sec. 170(b)(1)(A) public charity. The property must be commingled with that of other donors. Tax-free funds may not be transferred to the trust, nor are they a permissible investment for the trust. The trust must be maintained by the public charity that is the remainder recipient. A PIF donor or beneficiary may not be a trustee with management responsibility. Finally, each beneficiary must receive his or her prorated share of the PIF income annually. Sec. 642(c)(5).
Pooled Income Fund Document Requirements
During the past three decades, the Treasury Department has on several occasions issued guidance to assist charities in the administration and operation of PIFs. The first revenue ruling set forth specific provisions for trust instruments that would meet the required regulations. Rev. Rul. 72-196. The following ruling gave greater detail to the required provisions. It discussed the requirements for a life interest, for property investment, for prohibiting tax-free investments, for allocating income to recipients and for handling the death of an income recipient. Rev. Rul. 82-38. A subsequent ruling discussed provisions for alternative charitable remainder recipients, if the public charity loses its qualified exempt status. Rev. Rul. 85-57. The fourth ruling set forth specimen trust documents for a pooled fund. If charities follow those documents and operate consistent with the requirements of the IRS documents, then the fund will be qualified. Rev. Proc. 88-53. Normally, Treasury will no longer issue determination letters for pooled funds, since they should not be required. Finally, a fifth revenue procedure was issued to refine the language of pooled fund documents. Rev. Proc. 99-3.
Income Beneficiaries
A qualified PIF requires that the donor must create an income interest for "the life of one or more beneficiaries, each of whom must be living at the time of the transfer." Reg. 1.642(c)-5(b)(2). It is permissible to create a PIF with two, three, four or even more measuring lives. Unlike the charitable remainder unitrust or annuity trust, the PIF is not subject to the 10% minimum deduction interest test. Furthermore, the PIF may include a class of beneficiaries, so long as there is no sprinkling power among the class.
If there are two or more beneficiaries, then it normally is appropriate to retain a testamentary power of revocation. This retained power precludes a current gift and results in inclusion of the taxable interest of the successor beneficiary in the estate of the donor. Reg. 1.642(c)-5(b)(2).
