The pooled income fund must be maintained by the public charity that will be the remainder recipient. Reg. 1.642(c)-5(b)(5). However, many national organizations include a large number of integrated auxiliaries. In addition, community foundations serve the interest of many of their area public charities.
National Charities
National charities often serve multiple regional or local affiliates. In the interest of efficiency, the national charity desires to maintain the pooled income fund for the benefit of these local entities. The Service determined that this would be permissible, so long as the local charity could not receive the fund interest prior to the death of the income recipient and provided that the local charity was still an affiliate at the time for distribution. Rev. Rul. 92-107.
While this was helpful to national charities with integrated auxiliaries, the ruling was somewhat limited. It did however allow charities with a cohesive national structure to operate pooled income funds for all of the affiliates.
Community Trust Funds
Community foundations frequently desired to operate pooled income funds for all of their charities in their region. However, these charities were not technically integrated auxiliaries or even affiliates of the community foundation. The plethora of local charities in a community have their independent Boards and cover the entire range of philanthropic enterprise. In response to requests from community foundations, the Service issued and then promptly revoked a ruling that stated community foundations would not be permitted to operate pooled income funds for their area charities. Rev. Rul. 92-108.
After reconsideration and clarification of specific requirements, the Service did determine that it would be permissible for community foundations to manage pooled income funds for their area charities. The community foundation must retain discretion to determine the charitable beneficiary of the interest or the donor must designate a component fund within the community foundation that benefits his or her favorite charity. Rev. Rul. 96-38. This ruling is very favorable for the community foundations, since it permits pooled income funds to be created, with the remainder remaining with the community foundation as an endowment for the benefit of the charity.
Trust Administration
The public charity must be the manager of the trust. However, the public charity may select a bank or other trust company to administer the fund. This is permissible so long as the public charity exercises control over the fund and has the authority to appoint a new administrator. Reg. 1.642(c)-5(b)(5).
Many banks and trust companies do serve as administrators of pooled income funds. Since the valuation of the fund, the allocation of income, and the prorata calculations for the first partial year and the final year of termination are somewhat complex, many charities choose to use a professional administrator for the pooled fund.
Trustee as Beneficiary
A donor or beneficiary to a pooled income fund may not serve as a trustee with general responsibilities for the PIF. Reg. 1.642(c)-5(b)(6). However, it is still possible for trustees or directors of a charity to be donors to the pooled income fund. If a trustee or director is a donor to the pooled income fund, then the organization should pass a resolution that excludes him or her from any management responsibilities with respect to the fund.
