The Pooled Unitrust | Sharpe Group
Posted February 14th, 2020

The Pooled Unitrust

Last time, we looked at the total return PIF.

It turns out, IRS regs also permit a pooled unitrust. It’s a pooled income fund that makes a unitrust payout.

It works from a tax standpoint like a regular PIF with one catch. To understand the “catch”, we need to understand how a garden variety PIF works.

Let’s take the usual PIF, which pays out just its regular income, typically its dividends and interest. The PIF may realize capital gain from selling appreciated stock. The realized gain is added to principal.

The PIF pays no tax on this realized gain. Why not? Because of a special deduction, called a set-aside deduction, allowed to garden variety PIFs.

Keep in mind that unlike a CRT, a PIF is not exempt from tax. As to the income distributes to its beneficiaries, it gets what’s called a distributions deduction. So although it’s not technically exempt from tax, it’s functionally exempt from tax.

Here’s the “catch” with a PIF that makes a unitrust payout. It gets no set aside deduction for realized gains added to principal. The result is that the unitrust PIF pays tax on such gains.

Sounds bad, huh? Well, maybe not. Maybe not if the PIF trustee sells just enough appreciated stock to satisfy the PIF’s unitrust payout requirement. Any realized gains that are distributed qualify for the distributions deduction.

I find it interesting the games that can be played with a PIF.

By Jon Tidd

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