WEALTH TIP OF THE MONTH

Choosing the Right Charitable Vehicle for Multi-Generational Impact; PIF vs. CRT 

 

I am often asked which charitable vehicle is better. The comparison between Pooled Income Funds (PIFs) and Charitable Remainder Trusts (CRTs). Both vehicles, were introduced under the 1969 Tax Act (PIFs under §642(c)(5) and CRTs under §664), serve as charitable giving instruments, enabling donors to contribute to charity while receiving financial benefits. While both have similarities, their differences often drive a donor’s decision. 

 

Let’s begin with understanding CRTs 

CRTs are versatile in form, including Standard CRT, Net Income CRT, Net Income with Makeup CRT, Flip CRT, and Charitable Remainder Annuity Trust. Despite nuanced differences, CRTs share common features: 

 

1. Split-Interest Structure: CRTs have both an income beneficiary and a remainder beneficiary, with the remainder designated for a charity, often a public charity for tax purposes. 

2. Tax-Exempt Status: CRTs allow low-basis assets to be sold within the trust without triggering capital gains taxes. 

3. Minimum Payout Requirement: CRTs must distribute at least 5% of the trust's value annually to beneficiaries. 

4. Remainder Interest Calculation: The CRT trust’s remainder interest must actuarially retain at least 10% of the original donation. 

5. Private Structure: CRTs are generally private, created by families for their benefit, and often administered by a family trustee. 

6. Unsuitable for Unrelated Business Taxable Income (UBTI): CRTs cannot hold (UBTI)-either before or after the contribution is made. 

7. Term Flexibility: CRTs can be set for the lifetime of beneficiaries or a term not exceeding 20 years. 

 

Now let’s look at the key characteristics of Pooled Income Funds (PIFs) 

Unlike CRTs, PIFs are single form trusts created and managed by public charities, where donors’ contributions are pooled for collective benefit. 

 

• Split-Interest Structure: Like CRTs, PIFs have income and remainder beneficiaries, with the remainder designated for a public charity. 

• Complex Trusts Without Tax Exemption: PIFs pay out all their income, and special provisions allow them to avoid recognizing long-term capital gains tax on low-basis assets. 

• No Minimum Payout Requirement: PIFs distribute 100% of their income without a fixed minimum payout rate. 

• Actuarial Calculations: PIFs follow specific rules for discount rates, based on federal benchmarks. 

• Public Structure: PIFs pool donors' assets and are managed by public charities, with the charity serving as the trustee. 

• Flexibility with UBTI-Producing Property: PIFs can invest in UBTI-generating assets after donation, providing greater investment flexibility. 

• Life-Only Income Beneficiaries: PIFs are limited to living persons as income beneficiaries and must adhere to private foundation rules. 
  ​

Making the Choice: PIF or CRT? 

When deciding between a PIF and a CRT, donors must look beyond large, institutional PIF sponsors like Harvard or Stanford. Today, donor-friendly, advisor-oriented PIF-focused charities offer significant flexibility: 

 

• Acceptable Asset Variety: Unlike traditional institutions, donor-focused PIFs can accept non-standard assets, such as real estate or private business interests. 

• Family Pooling: Contributions from both spouses can create a “pooled” structure for a single family, offering multi-generational benefits. 

• No Age Restrictions: The absence of a minimum payout or remainder requirement in PIFs allows younger donors, even those as young as 45, to participate. 

 

For families looking to benefit multiple generations, PIFs are often the preferred choice over CRTs, which typically limit the number of beneficiaries and often exclude younger generations.  

 

Moreover, PIFs may provide a larger charitable income tax deduction than CRTs, particularly when offsetting Roth conversions or other tax planning goals. 

 

In summary, while CRTs are valuable for certain financial situations, PIFs offer unique advantages, especially for donors seeking multi-generational impact and greater flexibility in asset contributions. For younger or multi-generation planning, the PIF structure often stands as the superior choice. 

For further insights into the pros & con of CRT’s and PIF’s or other tax planning strategies, feel free to reach out to us. 
 

barry.boscoe@brightonadvisory.com  

Office: 818-342-9950 

Mobile: 818-802-0686