3.8.5 Gift of Pooled Income Fund to Charity

Private Letter Rulings

PLR 9550026 Gift of Portion of Unitrust Income Interest:   In PLR 9550026 the donors had previously created a charitable remainder unitrust. Since the trust had grown substantially, they thought that their desire to make a $1,000,000 gift to a university could be accomplished by giving 20% of their interest in the trust. The Service allowed them to give an undivided 20% of their income interest and receive a tax deduction for that value, based on a factor calculated using their ages and 20% of trust fair market value on the date of the gift. Since the university was the remainder recipient and now held both the income and remainder interests in the 20% of the trust that equaled $1,000,000, that amount could be severed from the trust and used to fund the new building.

PLR 9721014 Gift of Unitrust Income Interest:   When a unitrust is created, the donors retain the rights to an income interest and the charity receives irrevocably the remainder interest. This income interest retained by donors is a property right under state law and thus should be transferable like any other property rights. The Service allowed the donors to transfer their income interest to the remainder recipient. When the income interest is transferred, since it is their only interest in the trust, there will be a charitable deduction under Sec. 170 of the Code for the value of the income interest gifted. To calculate that interest, run the unitrust again with the value on the date of the gift of income interest. The deduction is the income value. For example, if the trust was originally $400,000, but has grown to $500,000, run the deduction with the $500,000 value, the current date and the current Rate of the Month. If the remainder value is $200,000, their deduction is $300,000. The $500,000 total value less the $200,000 remainder value equals the $300,000 gift deduction. This is of course an appreciated-type gift deductible to 30% of AGI. Since the charity now owns both the income and the remainder interest, under the doctrine of merger, the trust no longer exists and the charity may use the trust principal for appropriate charitable purposes.