The Pooled Income Fund (PIF) is a type of charitable
mutual fund
A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV ...
or
charitable trust that pools the
securities
A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
or
cash
In economics, cash is money in the physical form of currency, such as banknotes and coins.
In bookkeeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-im ...
separately donated by an individual, a family or a corporation to a charity, which is then invested to provide dividends for both the donor's beneficiary and charity. The donations are irrevocable and
tax-deductible
Tax deduction is a reduction of income that is able to be taxed and is commonly a result of expenses, particularly those incurred to produce additional income. Tax deductions are a form of tax incentives, along with exemptions and tax credits. T ...
and must be from personal assets.
Capital gains tax
A capital gains tax (CGT) is the tax on profits realized on the sale of a non-inventory asset. The most common capital gains are realized from the sale of stocks, bonds, precious metals, real estate, and property.
Not all countries impose a c ...
es do not apply to securities donated to such a fund. The Pooled Income Fund was created by the
Tax Reform Act of 1969
The Tax Reform Act of 1969 () was a United States federal tax law signed by President Richard Nixon in 1969. Its largest impact was creating the Alternative Minimum Tax, which was intended to tax high-income earners who had previously avoided incur ...
and is governed by IRS Section 642(c)(5).
After a
donor dies, the balance of their donation is given to a pre-determined qualified
501(c)(3) charitable organization
A charitable organization or charity is an organization whose primary objectives are philanthropy and social well-being (e.g. educational, religious or other activities serving the public interest or common good).
The legal definition of a ...
(or several organizations). Charities typically manage their own pooled income fund, and fund their operations through the donated securities.
History
Created in 1969, the Pooled Income Fund (PIF) grew in popularity during its first two decades. In the 1970s and 1980s, when rates on intermediate-term bonds were well into double digits, PIF managers were able to invest in a combination of stocks and bonds that enabled long-term preservation and growth in principal as well as income payouts up to 10 or 12 percent during those decades.
In the late 1980s and into the next two decades, as the bond rates began and continued to spiral down, the resulting PIF payout rates for declined as well, with some falling below 3% in the new millennium. While a PIF might pay 3%, the standard recommended
Charitable Gift Annuities payout rate for a 70-year-old was above 5%. The number of PIF forms (Form 5227) filed with the IRS declined 67% in 7 years, from 4,571 in 2001 to 1,488 in 2008.
When interest rates reached their historic lows, around 2020, the Pooled Income Fund market began to reemerge with the establishment of new PIFs -- any PIF in existence for less than three taxable years preceding the year of contribution -- with the possibility of locking in large charitable deductions as well as reaping enhanced income payout rates, in comparison with other split-interest charitable vehicles, like
charitable remainder trust or
charitable gift annuity.
See also
*
Pooled fund
References
External links
A comprehensive overview of pooled income funds by the Planned Giving Design Center
Wills and trusts
Equity (law)
Investment funds
Charity in the United States
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