Pooled Income Fund

[Kathleen Reynolds]

#3056

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A Pooled Income Fund is an irrevocable trust that is maintained by a charitable organization to which many individuals contribute property. The fund provides an annuity to a non-charitable income beneficiary(ies) for a period measured by the life expectancy of one person (up to five persons).

Donors retain a life-income interest in the property for one or more beneficiaries who receive an annual income dependent on the trust’s rate of return for the year. At the death of the last beneficiary, the remaining value of the gift belongs to the charity.

In order for a fund to qualify as a Pooled Income Fund it must meet the following requirements:

• The property transferred by each donor must be combined with the property transferred by other donors.
• The fund cannot be used to invest in tax-exempt securities.
• Neither the donors nor the income beneficiary can be a trustee.
• The donor must maintain a life income interest.
• The beneficiary(ies) is entitled to receive a pro rata share of the income, annually, based on the rate of return that is earned by the trust.

If these qualifications are met, the donor will receive an income, and gift or estate tax deduction.

Entering Data

• Transfer Date: Enter 1 to 12 to indicate the month for the transfer date and then enter the year of the transfer (mm/yyyy). See Transition Period Notes below
• Value of Property: Enter the fair market value of the property contributed by the donors.
• Highest Rate of Return for Three Preceding Years: Enter the highest rate of return earned by the fund in any one of the three years preceding the year of the contribution.
• Payment Years: Enter the duration of the trust, for a period not in excess of 20 years. Valid entries are 1-20. This data input field will only be available when Term is chosen as the Calculation Type.
• Lives: Enter the number of lives (up to five) that will be used to determine the distribution. The Pooled Income Fund handles Life scenarios only.
• Ages: This data input field is only available when Life is chosen as the Calculation Type. Use a value from 0 to 109 to indicate the age of the person whose life is being used
  to measure the term of the trust. Enter the age of this person(s) using the birth date which is nearest to the transfer date.
• Cost Basis: Enter the amount of basis for the asset being placed in the trust.
• Charity Type: Choose 50%, 30%, or 20%. All qualified non-profit organizations will fit within one of these types (IRS Publication 78).
• Capital Gains Rate: Enter the income tax rate that applies to capital gains property.
• Charity Type Choose 50%, 30%, or 20%. All qualified non-profit organizations will fit within one of these types (IRS Publication 78). There is also special consideration for Cash, 60%. For more information, visit: https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution deductions#:~:text=ln%20most%20cases%202C%20the%20the%20amount,not%20subject%20to%20this%20limitation

Income Tax Inputs

• Sunset in 2026? The Tax Cut and Jobs Act of 2017 sunsets in 2026. Indicate whether or not you wish to assume that the income tax provisions of that act will sunset.
• Adjusted Gross Income Enter the total estimated amount of adjusted gross income for the year in which taxes are being calculated.
• Total Itemized Deductions Enter the estimated total of allowable itemized deductions.
• Deductions Not Subject to Phaseout Enter the estimated total of allowable medical, casualty, or theft losses, and investment-interest deductions (subject to the regular limits and restrictions discussed above).
• Total Long-term Capital Gain Enter the total net gain from the sale or disposition of capital assets held for more than one year that has been included in adjusted gross income.
• 28% Rate Capital Gain Enter the total net gain from collectibles and section 1202 that has been included in adjusted gross income. (See IRC section 1(h)(4).)
• Qualified Dividends For years 2003 and following, enter the total amount of dividends that are included in adjusted gross income and qualify for the special tax rate for long-term capital gains.
• Unrecaptured §1250 Gain Enter the amount of long-term capital gain included in adjusted gross income that would be ordinary income if section 1250 applied to depreciation in excess of 100% straight-line depreciation. (See IRC section 1(h)(6).)
• Net Investment Inc. For tax years after 2012, enter the amount of net investment income as defined by IRC section 1411(c) that has been included in adjusted gross income. In general, net investment income is investment income such as interest, dividends, capital gains, rental and royalty income, non-qualified annuities, income from businesses trading financial
  instruments or commodities, and businesses that are passive activities to the taxpayer (within the meaning of section 469), reduced by deductions properly allocable to those incomes, such as investment interest expense, investment advisory and brokerage fees, expenses related to rental and royalty income, tax preparation fees, fiduciary expenses (in the case of an estate or trust), and state and local income taxes.
• Filing Status Choose the applicable filing status (Single, Joint, Separate, Head of Household).
• Age in Tax Year Enter the taxpayer’s age at the end of the tax year being calculated.
• Spouse’s Age in Tax Year Enter the age of the taxpayer’s spouse at the end of the tax year being calculated.
• Personal Exemptions Enter the number of allowable personal exemptions for the taxpayer and any dependents.
• Estimated Inflation Enter an inflation rate to be applied to bracket amounts and other deductions in future years. For the current year or past years, this input is not applicable.

Results

The fair market value of a remainder interest in property transferred to a pooled income fund is the value of the property contributed (the value is determined under Treasury Reg. §1.642(c)-6(a)(1)). The program selects a remainder factor that is determined by the number of lives and the transfer date that is used. (The Charitable Financial Planner handles one to five lives.) These factors may be found in the IRS Publication 1457, Actuarial Values Alpha Volume for transfer dates after April 1989 and IRS Publication 723D for transfer dates prior to May 1989.

If the transfer date 5/1999-6/1999, 5/2009-6/2009, or 1/2021+ is used, the Mortality Table data input field appears. Under a transitional rule for those dates, you may optionally use newer life expectancy assumptions or older life expectancy assumptions.

If the yearly rate of return is a percentage that is between those rates for which returns are provided in the table, a linear interpolation is required. The present value of the remainder interest is determined by multiplying the remainder factor times the fair market value of the property contributed.

Highest Rate of Return for Three Preceding Years: This number is imported from the input field section of this calculation. It is the highest rate of return earned by the fund in any one of the three years preceding the year of the contribution.
If the yearly rate of return is a percentage that is between those rates for which returns are provided in the table, a linear interpolation is required.

Remainder Factor: This factor changes depending on the number of lives used for this calculation.

Charitable Deduction for Remainder Interest: The dollar amount of the property value that is not subject to taxation (income tax). The present value of the remainder interest is determined by multiplying the remainder factor times the fair market value of the property contributed. The fair market value of a remainder interest in property transferred to a pooled income fund is the value of the property contributed.

Donor’s Deduction as Percentage of Property Transferred: The percentage amount of the property value that is not subject to taxation (income tax).

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