So, you have a pooled income fund (PIF). How’s your fund doing? We hear a variety of stories from our clients. Some clients have PIFs that are doing well, but many others are looking for ways to close their PIF. Once upon a time, when PIFs were in favor, their attraction was in their relative simplicity compared to charitable remainder trusts. No trust document was needed because it was already in place; the documentation was a simple one or two page Instrument of Transfer. A second advantage of the PIF was the relatively low cost of administration. Charitable remainder trusts require the creation the filing of tax and informational returns for each individual trust. In contrast, the charity was required to file only one set of returns for a PIF, regardless of the number of participants. The reporting requirements to the participants involved a relatively simple Schedule K-1. A third advantage of PIFs was that they could accept smaller contributions than charitable remainder trusts. These features made the PIF arguably the most popular form of life income gift in the 1980s and early 1990s. Oh, how times have changed!
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While most planned gifts are funded with a single asset, typically cash or a single block of long term appreciated securities, it is not unusual for a donor to create a planned gift using a combination of assets. The combination might be a single block of long term appreciated securities plus cash, or a block of long term appreciated securities plus a block of short term appreciated securities, or cash plus long term appreciated mutual fund shares and short term appreciated mutual fund shares.
All organizations with a planned giving program make a point of counting how many planned gifts they receive each year and totaling their face value. Most divide up this information by type of gift: realized bequests, gift annuities, charitable remainder unitrusts, etc. You can gain valuable insight into what gifts and what types of donors are driving a planned giving program from even these simple statistics.
There are a variety of ways that a donor can make a commitment to your charity of an end-of-life gift that she can modify later or cancel altogether, if necessary. This sort of flexibility can be of great comfort to a donor who is nervous about her financial future, but wants to act on her desire to support a charity.
Gift planners are frequently asked to compute the present value of a planned gift. The calculation of present value can vary widely, however, depending on its purpose. Whenever you are asked to provide the present value of a deferred gift, your immediate response should be, “For what purpose?” This article will explore four common applications of present value in planned giving. Charitable income tax deduction computation Campaign reporting Gift valuation Financial accounting The first three applications represent different ways to determine the present value of the charitable portion of the gift. The last application is a way to determine the present value of the non-charitable portion of the gift.
Gift planning professionals devote much of their time to creating attractive gift arrangements that offer significant benefits, both to the donors who provide the funding, and to the charitable organizations named in the gifts. Life income gifts, in particular, provide the donors with charitable deductions, income for life and / or a period of years, and the satisfaction of knowing they have supported a charitable organization in whose mission they believe. The amount of income resulting from a life income gift arrangement is fairly straightforward and depends on the amount of funding principal, the range of possible payout rates allowed by the IRS, the level of income appropriate for the underlying investments, and (for gift annuities) the ages of the beneficiaries.
“Virtual currencies” have been around for some time but have increasingly been in the news over the past several years. This can be at least partially attributed to the popularity of the virtual currency “Bitcoin,” which has experienced enormous growth in value since its launch in 2009. With the continued growth of Bitcoin, offers of gifts of bitcoins have inevitably followed. While still not common, charities are beginning to consider these gifts and in some cases accept them.
Planned Giving offers donors a variety of gift vehicles to support their favorite charitable organizations in the long run; moreover, it offers donors the chance to obtain significant financial benefit for themselves in the short run. The most popular planned giving vehicles, after bequest-type gifts, are life income gift arrangements: Charitable Gift Annuities (CGAs), Charitable Remainder Trusts (CRTs), and Pooled Income Funds (PIFs). These vehicles are widely used by philanthropic individuals to achieve their charitable objectives while establishing a stream of income for life and / or a period of years. But are all planned gifts – and more specifically, are all life income gifts – truly beneficial for the nonprofit organization? Are some of these gifts better than others? And how does a charity attempt to measure the relative merit of a prospective life income gift arrangement?
For most organizations, the contractual payout rate on a charitable gift annuity is the rate suggested by the American Council on Gift Annuities (ACGA). These rates are based on ages of the annuitants – the older the persons, the higher the rates. They are also based on an assumption that the charitable organization should receive a remainder equaling at least 50% of the initial funding amount. An investment return assumption (based on an assumed asset allocation) also underlies the rates, and so the gift annuity payout rates tend to increase as investment returns in general rise, and they tend to decrease when returns in general fall.
We are becoming an increasingly visual culture. Consider this: of all the photos ever taken by humankind, 10% have been taken in the last 12 months (Source: Adage). In the age of Instagram and Snapchat, images are central to how we communicate with and relate to each other on a daily basis.
Our fondness for images should come as no surprise. 90% of information transmitted to the brain is visual, and visuals are processed 60,000 times faster in the brain than text. (Sources: 3M Corporation and Zabisco). Accordingly, imag-rich content has always performed well online. Google introduced images into its search results over eight years ago, and found that 60% of consumers are more likely to click on a business whose images appear in search results.
So what does all that mean for your charity?