Pooled Income vs CRUT

Pooled Income vs CRUT

Forum topic posted in Forum, IRS Notices on 16 January 2011| 3 comments
audience: | last updated: 19 January 2011
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Joined: 01/11/2011
Points: 60
I know of someone contemplating a contribution to either a pooled income fund or a CRUT. I cannot think of any reason a donor would choose to contribute to a pooled income fund when a CRUT is available. For example, CRUTs are more flexible with respect to payouts (choose a rate versus income only for pooled income funds). CRUTs are also more tax efficient with respect to distributions; CRUT distributions are a mix of income and realized gains typically, while pooled income are taxed as 100% ordinary income typically. Given the choice, assuming each is managed equally competently, why would anyone choose the pooled income fund over a CRUT? I would appreciate any insights. Thanks.

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Joined: 02/22/2006
Points: 15
Pooled Income Fund
A PIF is also a good vehicle for an older donor who desires to have the income stream given to younger children (eg. 35 years old). This would not be attractive for a CRT. Since the pooled income fund only distributes income and not principal, the age of the income beneficiaries is not a factor for a qualified gift program.
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Joined: 11/15/2010
Points: 15
PIF advantages
I agree with Emily's assessment above. Realistically, because of the lower threshhold she mentions, the most common decision for donors at many charities is between a pooled income fund gift and a charitable gift annuity. In general, the popularity of pooled income funds has fallen with income yields over the past decade. In fact, in almost ten years at a large national non-profit, we only received a handful of pooled income fund gifts. Most were from the same gentleman, whose reason for choosing the PIF over a charitable gift annuity was his concern for the remainder. He wanted to maximize the principal amount available when the gift matured and saw the income stream as nice but unnecessary. Since a PIF distributes only income while a charitable gift annuity returns some principal to the donor, he felt he was leaving more for the non-profit through his pooled income fund gift. His current income tax deductions were relatively higher, too.
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Joined: 06/08/2006
Points: 30
PIF advantages
John, a charity's PIF is appealing to a donor who wishes to make a much more modest contribution than is required to fund a new CRT on his own; the threshold for new entrants into a PIF is much lower. Next, a donor who contributes into an existing PIF does not face any transaction fees, while establishing a new trust on his own would incur legal fees on the part of the donor. Third, a PIF is designed to benefit only the charity that serves as its fiduciary, so a donor who does not intend to name multiple charities as remainder beneficiaries would not feel compelled to create a new CRT instead. Regarding the annual K-1s generated by these different trust vehicles, it is not necessarily true that PIF distributions are less tax advantaged; that may only seem to be the case because the underlying investments in a PIF are generally in an asset allocation designed to maximize income stream rather than growth in principal.
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