University of Virginia Library

WITNESSETH:

From time to time in the past the Institution has received gifts for its ultimate benefit with the donors reserving to themselves, and in some cases others, the income from the property for their lives. Because of the complicated tax provisions presently applicable to charitable remainder trusts, the Institution believes it would be desirable to create a fund that would qualify as a pooled income fund under § 642(c)(5) of the Internal Revenue Code of 1954. The Trustee is willing to act as the Trustee of such a fund.

NOW, THEREFORE, in consideration of the premises, the parties hereto agree as follows:

1. Name of Fund.

The fund to be held, administered and distributed pursuant to this Agreement shall be known as the University of Virginia Pooled Income Fund and is hereinafter referred to for convenience as the "Pool".

2. Gifts of Remainder Interest Required.

Each donor transferring property to the Pool shall contribute an irrevocable remainder interest in such property to or for the use of the Institution.

3. Retention of Life Income Interest Required.

Each donor transferring property to the Pool shall retain for himself for life an income interest in the property transferred, or create an income interest in such property for the life of one or more named beneficiaries, each of whom must be living at the time of the transfer of the property to the Pool by the donor. Such income interest shall be represented by units of participation in the Pool. In the event more than one beneficiary of the income interest is named, such beneficiaries may enjoy their shares of income concurrently, consecutively or both concurrently and consecutively. The Institution may also be designated as one of the beneficiaries of the income interest. The donor need not retain or create a life interest in all the income

from the property transferred to the Pool provided any income not payable to an income beneficiary under the terms of the instrument of transfer is contributed to, and within the taxable year of the Pool in which it is received is paid to, the Institution.

4. Commingling of Property Required.

The property transferred to the Pool by each donor must be commingled with, and invested or reinvested with, other property transferred to the Pool by other donors satisfying the requirements of this instrument and of § 642(c)(5)(A) of the Internal Revenue Code of 1954 or corresponding provision of any subsequent Federal tax law. The Pool shall not include property transferred under arrangements other than those specified in this instrument and § 642(c)(5) of the Internal Revenue Code of 1954 or corresponding provision of any subsequent Federal tax law. All or any portion of the Pool may, however, be invested or reinvested jointly with other properties, not a part of this Pool, which are held by, or for the use of, the Institution. When such joint investment or reinvestment occurs, detailed accounting records shall be maintained by the Trustee of the Pool specifically identifying the portion of the total fund which is owned by the Pool and the income earned by, and attributable to, such portion.

5. Prohibition Against Exempt Securities.

The property transferred to the Pool by any donor shall not include any

securities the income from which is exempt from the taxes imposed by Subtitle A of the Internal Revenue Code of 1954 or corresponding provision of any subsequent Federal tax law, and the Trustee of the Pool shall not accept or invest in any such security as a part of the Pool.

6. Control by Institution Required.

The Institution shall always maintain the Pool or exercise control, directly or indirectly, over the Pool. The Trustee may resign as Trustee of the Pool and designate a new Trustee or Trustees of the Pool. The Institution retains the power to remove such Trustee or Trustees and to designate a new Trustee or Trustees, including the Institution.

7. Prohibition Against Donor or Beneficiary Serving as Trustee.

The Pool shall not have as a Trustee a donor to the Pool or a beneficiary (other than the Institution) of an income interest in any property transferred to the Pool. No donor or beneficiary (other than the Institution) shall have, directly or indirectly, general responsibilities with respect to the Pool which are ordinarily exercised by a Trustee.

8. Taxable Year - Income of Beneficiary to be Based on Rate of Return of Pool.

The taxable year of the Pool shall be the fiscal year ending October 31. To each beneficiary entitled to income of any taxable year of the Pool, the Trustee of the Pool shall pay such income in the amount

determined by the rate of return earned by the Pool for such year with respect to the beneficiary's income interest, payment to be made at least once in the taxable year in which the income is earned. Until the Trustee determines that payments shall be made more or less frequently or at other times it shall make income payments to the beneficiary or beneficiaries entitled thereto in four quarterly payments on or about March 15, June 15, September 15 and December 15 of each year. An adjusting payment, if necessary, will be made during the taxable year or within the first 65 days following its close to bring the total payment to the actual income to which the beneficiary or beneficiaries were entitled for that year.

9. Termination of Life Income Interest.

Upon the termination of the income interest of any designated beneficiary or beneficiaries, the Trustee of the Pool shall sever from the Pool an amount equal to the value of the remainder interest in the property upon which the income interest is based. The value of the remainder interest for such purpose shall be its value as of the next succeeding determination date. The amount so severed from the Pool shall be paid to the Institution.

10. Proration Not Required.

The income interest of any beneficiary of the Pool shall terminate with the last regular payment of income which was made before the death of the beneficiary. The Trustee of the Pool shall not be required to prorate any income payment to the date of the beneficiary's death.

11. Unit Plan of Allocation of Income to Beneficiary.

Every income interest retained or created in property transferred to the Pool shall be assigned a proportionate share of the annual income earned by the Pool, such share or units of participation being based on the fair market value of such property on the date of transfer as provided in this paragraph. On each transfer of property by a donor to the Pool, there shall be assigned to the beneficiary or beneficiaries of the income interest retained or created in such property the number of units of participation equal to the number obtained by dividing the fair market value of the property transferred by the fair market value of a unit in the Pool immediately before such transfer. The fair market value of a unit in the Pool immediately before the transfer shall be determined by dividing the fair market value of all property in the Pool at such time by the number of units in the Pool. All units in the Pool always shall have equal value. The amount of the income allocated to each unit of participation in the Pool shall be determined by dividing the income of the Pool for the taxable year by the outstanding number of units in the Pool at the end of such year, except that income shall be allocated to units outstanding during only part of such year by taking into consideration the period of time such units are outstanding during such year.

12. Determination dates.

If possible, each transfer of property by a donor to the Pool and each withdrawal from the

Pool as a result of the transfer of the remainder interest in any property of the Pool shall be made only on a determination date of the fair market value of all property held by the Pool. A determination date means each day within the taxable year of the Pool on which a valuation is made of the property in the Pool. The property of the Pool shall be valued on the first day of the taxable year and on the first day of the fourth, seventh and tenth months of the taxable year. If a transfer of property to the Pool by a donor occurs on other than a determination date, the number of units of participation assigned to the income interest in such property shall be determined by using the average fair market value of the property in the Pool immediately before the transfer, which shall be deemed to be the average of the fair market values of the property in the Pool on the determination dates immediately preceding and succeeding the date of transfer. For the purpose of determining such average fair market value, the property transferred by the donor and any other property transferred to the Pool between such preceding and succeeding dates, or on such succeeding date, shall be excluded. The fair market value of a unit in the Pool immediately before the transfer shall be determined by dividing the average fair market value of the property in the Pool at such time by the number of units then in the Pool.

13. Prohibited Activities.

Notwithstanding any other provision hereof, the Trustee hereunder shall require the trust

income for each taxable year to be distributed at such time and in such manner as not to subject the trust to tax under § 4942 of the Internal Revenue Code of 1954 or corresponding provision of any subsequent Federal tax law and shall not engage in any acts of self-dealing (as defined in § 4941(d) of the Internal Revenue Code of 1954 or corresponding provision of any subsequent Federal tax law); nor shall the Trustee make any taxable expenditures (as defined in § 4945(d) of the Internal Revenue Code of 1954 or corresponding provision of any subsequent Federal tax law); nor shall the Trustee make any investments which jeopardize the charitable purpose of any gift to the Pool (as defined in § 4944 of the Internal Revenue Code of 1954 or corresponding provision of any subsequent Federal tax law) or retain any excess business holdings (within the meaning of § 4943 of the Internal Revenue Code of 1954 or corresponding provision of any subsequent Federal tax law).

14. Definition of Income.

For the purposes of this trust, the term "income" has the same meaning as it does under § 643(b) of the Internal Revenue Code of 1954 or corresponding provision of any subsequent Federal tax law and regulations thereunder. The term "income" shall mean net income after payment of any expenses of administering the trust. Such expenses shall include reasonable investment management, custodian and like fees and reasonable compensation of the Trustee. The following shall be treated as principal and not as income:

• (a) Gains and losses from the sale, exchange, redemption or other disposition of investments;
• (b) Stock dividends, stock splits and similar distributions;
• (c) Capital gain dividends of regulated investment companies;
• (d) Liquidation distributions; and
• (e) Any other dividends or distributions not deemed taxable as income under the Internal Revenue Code.

15. Trustees' Powers and Compensation.

The Trustee shall have all the powers set forth in § 64.1-57 of the Code of Virginia except to the extent limited by this instrument and § 642(c)(5) of the Internal Revenue Code of 1954 or corresponding provision of any subsequent Federal tax law. The Trustee shall receive compensation for its services based on the rates in effect from time to time at which it is willing to render similar services to others.

16. Incorporation by Reference.

This instrument may be and is intended to be incorporated by reference in any will, trust or other instrument whereby property is transferred to the Trustee and an income interest is retained or created for the life of one or more beneficiaries, each of whom is living at the time of transfer. This instrument, together with any such instrument of transfer, shall together be considered the "governing instrument" for such transfer. Any property transferred to the Trustee by will

or otherwise whereby an income interest is retained or created for the life of one or more named beneficiaries each of whom is living at the time of transfer, where this instrument is not incorporated by reference, shall be made a part of the Pool and be held, administered and distributed under the terms of this instrument unless the will or other instrument of transfer is inconsistent with such action by the Trustee.

17. Purpose.

The purpose of the Pool is to create financial reserves for the Institution while, at the same time, affording reasonable returns to individual beneficiaries. It is not the purpose of the Pool to compete with regulated investment companies, commercial annuities or other forms of investment available to the general public. Solicitation of gifts to the Pool shall not be made from the general public, but only from alumni and friends of the Institution. The Institution shall establish and maintain policies from time to time setting forth minimum ages, maximum number of lives of individual income beneficiaries and the minimum donated amounts for participation in the Pool. The Institution shall give prior approval to each gift to the Pool before it is made a part of the Pool.

18. Governing Law.

By executing this instrument the Institution intends to qualify the Pool as a pooled income fund within the meaning of § 642(c)(5) of the Internal Revenue Code of 1954 or corresponding provision of any subsequent Federal tax law and the regulations thereunder. The provisions

hereof should be interpreted in accordance with the regulations and rulings promulgated by the Internal Revenue Service with respect to such funds and contributions to them. Otherwise, this instrument shall be governed by the laws of the Commonwealth of Virginia.

19. Limited Power to Amend.

• (a) Except as provided in this Paragraph 19, this Agreement may be amended, altered or modified at any time or from time to time by a written amendment executed by the Institution and the Trustee.
• (b) In the event that an amendment affects the rights or obligations of any income beneficiary hereunder, such amendment shall not become effective until the first day of the calendar month following sixty days after a copy of such amendment shall have been mailed to each such beneficiary. If such income beneficiary shall file with the Trustee a notice in writing objecting to such amendment, and if such notice is received by the Trustee at least five days prior to the effective date of the amendment, such amendment shall be void.
• (c) Notwithstanding any other provisions of this paragraph, no amendment shall be made which affects the irrevocable remainder interest granted to the Institution in all property held in the Pool or which

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  otherwise affects the qualification of the Pool as a "Pooled Income Fund" within the meaning of § 642 of the Internal Revenue Code of 1954 or corresponding provision of any subsequent Federal tax law and the Institution shall have the power to amend this Agreement for the purpose of preserving such qualification without reference to the limitations set forth in subparagraph (b) of this Paragraph 19.