I’ve spent considerable time comparing the pooled income fund (PIF) to the charitable remainder trust (CRT). In fact, if you go here and enter your email address, you can watch my narrated power point on the subject. To this point, however, I’ve not faced down the donor advised fund (DAF) which represents the single most popular planned gift in history, if the flow of funds is any measure. The PIF is actually quite a different animal but, what the heck, it’s Monday morning and I’m supposed to be writing about something. So, here goes.
A DONOR-ADVISED FUND, or DAF, is a giving vehicle established at a public charity. It allows donors to make a charitable contribution, receive an immediate tax deduction and then recommend grants from the fund over time. Donors can contribute to the fund as frequently as they like, and then recommend grants to their favorite charities whenever makes sense for them. DAFs have been around since the 1930’s but were really codified in the 1969 tax act and have risen in popularity beginning n the 1990’s. They are very much like a “charitable checking account” whereby funds can be held for as long as desired by the donor and distributed periodically as grants are decided upon. While the hosting charity has the ultimate say on the gift, no reasonable requests are denied. DAFs can receive most any type of asset, though, in practice, very few will take real estate, closely held stock, art or other unusual holdings. DAF gifts are completed gifts and the donor retains no right to any of the income. Because of this, the deduction value is 100% of the fair market value of most assets, usable up to the AGI thresh holds depending on the asset.
Pooled Income Funds (PIFs) are also established and run by public charities. Codified in the same year as DAFs, 1969, PIFs are found in §642(c)(5). They are split interest trusts, unlike DAFs. What that means is that a PIF pays out income to one or more income beneficiaries, normally the donor, Because of this the PIF doesn’t qualify for deductibility of 100% of the value of the gift. However, a donor and spouse utilizing a “young PIF”, both aged sixty-five, can look for a charitable income tax deduction of almost 65% of the value of the gift. The trade off with the DAF leaves them with the income from their gift so long as one of them is alive. That can be a very attractive option for those that may not have the cash flow to cede their assets fully to charity. Unlike DAFs, the PIF doesn’t make grants while its beneficiaries are alive. Some may consider that a drawback, others not.
PIFs can also take virtually any asset as a gift. The main exceptions are S Corporation stock and debt encumbered real estate. That means closely held stock, real estate, collectibles and other unusual assets can be donated to the properly receptive PIF.
For those advisors who don’t go beyond the DAF as a charitable alternative, it’s time to expand your horizons and your thought processes. Pooled Income Funds can and should be a viable consideration for donors who are thinking about DAFs but want to retain income.