Contents

§ 5.5 POOLED INCOME FUNDSA pooled income fund life agreement (the document by which the gift is evidenced)must: (1) specify at the time of the transfer the particular beneficiary orbeneficiaries to whom the income is payable, and the share of income distributableto each person so specified; and (2) contain an acknowledgment by thedonor that he or she has read the explanatory brochure of the pooled incomefund prior to execution of the life income agreement.Still other provisions may (and generally should) appear in one or both ofthe pooled income fund instruments. Thus, a pooled income fund declaration oftrust, and in many instances the life income agreement, may or should containone or more of the following provisions: (1) a formal name of the pooled incomefund; (2) a statement of the purposes of the fund; (3) a statement of the maintenancerequirement; (4) a summary of the general terms and conditions applicableto pooled income fund gifts; (5) authorization of the remainderman of thefund to invest its properties in the fund (see below); (6) a summary of the methodsof valuation of the pooled income fund and the dates on which the valuationshall be determined; (7) a summary of the unit plan or other method of evidencingan income interest in the fund; (8) an explanation of the considerations withrespect to the timing of the making of a gift to the fund; (9) a statement as towhether the fund is on the cash or accrual method of accounting; (10) a definitionof the receipts of the fund that are chargeable to income and to principal;(11) a summary of the procedures for computing and distributing income for theincome beneficiaries of the fund; (12) a discussion of the treatment of property inthe fund upon termination of the income interest in it; (13) a statement of theidentity and powers of the trustee(s) of the fund; (14) a statement as to whetherthe fund is to use the calendar year or another fiscal year; (15) a statement as towhether the pooled income fund declaration of trust can be amended; and (16) aprovision stating that a unit of participation is entitled to share in the income ofthe fund in a lesser amount than would otherwise be determined under the generalunit plan rules, provided that the income otherwise allocable to the unit ispaid within the tax year it is received by the charity to or for which the remainderinterest is contributed.(h) SeedingGenerally, the investment practices of a pooled income fund must be in conformancewith the conventional charitable trust law requirements. Althoughthe law states that a fund can include only amounts received from transfers thatmeet the statutory tests, the charity may combine the assets of the fund withthe organization’s endowment assets for investment purposes, as long as adequaterecords are maintained to show the separate nature of the two categoriesof assets.A charitable organization may begin operation of its pooled income fund byseeding the fund, in whole or in part, with its own assets. This may have to bedone, for example, when the trustee is a financial institution that demands aninitial deposit in the fund and there are inadequate gifts at the outset. Thereafter,as gifts come in, the assets can be withdrawn from the fund. Income beneficiariesdo not participate in the earnings from nongift assets in the fund. 161