Pooled Income Fund (PIF)
In a PIF, a charity receives a gift of cash or securities, invests it with similar gifts from other donors and then distributes a proportionate share of earnings to the donor. This helps those who may desire to leave property to a charity at death, but who currently need to supplement their income.
When starting a PIF, the donor receives earnings from the fund for life. When the donor dies, the charity keeps the PIF shares. The donor bypasses gain when appreciated property is sold, receives a current federal income tax deduction, and receives a percentage of the earnings every year. PIFs especially benefit donors who want a tax deduction and income stream, while being willing to give the principal to charity.
The donor transfers cash or appreciated property to the PIF and receives an income tax deduction for the present value of what will be left for the charity at the donor’s death. The PIF sells appreciated property, and all capital gain is bypassed. The cash or property sale proceeds are invested as part of the PIF. Each year the donor receives a percentage of the PIF earnings, which is usually taxed as ordinary income.