Pooled Income Funds May Make a Comeback in 2015

Next year may be an opportune time to promote gifts to a pooled income fund (PIF)!  That’s right. The planned giving vehicle that most charities have mothballed for the last 20 years may be poised for a comeback.  Why?  Read on.

In 2015, the charitable deduction for a gift to a pooled income fund less than three taxable years old will be the highest it has ever been. That is because the deduction for gifts to a “young” fund is based on an assumed valuation rate provided by the IRS, rather than a rate based on the fund’s own net income earning experience. This valuation rate will be just 1.2% in 2015, the lowest it has ever been, and that means that deductions for gifts to young PIFs in 2015 will be the highest they have ever been.

How high is high? The table below shows that a gift to a young PIF in 2015 that pays income to one person who is in the typical age range at the time of gift will generate a charitable deduction of 80% - 90% of the gift amount.

Deduction available for gift to young PIF in 2015

Since prevailing interest rates have been very low for several years now, it is likely that the valuation rate for PIFs that have been operating for more than three years is also very low, although probably a bit higher than 1.2%.  This would mean that gifts to such PIFs would also produce very substantial charitable deductions for the donors.  For example, a PIF with a 2.0% valuation rate would produce deductions in the 70% to 85% range for the ages in the table above.

Economists expect the Federal Reserve to begin gradually raising interest rates starting in mid-2015, so it appears likely that the deductions available for PIF gifts will start heading downward in 2016 and beyond. That would make 2015 an opportune time to promote new and old PIFs; the uniquely high deductions available for PIF gifts, coupled with the prospect of increasing income from them as interest rates rise, should make PIFs an attractive option for some donors who are interested in life income. This may be especially the case for donors who are 65 or younger, since they will have the most years to benefit from a gradual increase in PIF income. What’s more, like gift annuities (and unlike charitable remainder trust gifts), PIF gift agreements are simple and gift minimums are typically $10,000, and less for repeat gifts.

A pooled income fund is a long-term proposition, and takes resources to set up and to administer, so an organization should not take starting a new fund lightly. If your organization is committed to marketing the fund consistently and administering it long term, however, the economic conditions are right for success. On the other hand, if your organization already maintains a PIF, consider ramping up marketing it in the coming year.