Correct Past Distribution Explained

Correct Past Distribution Calculations Explained

GiftWrap's Correct Past Distribution routine allows you to correct errors in the amounts distributed to a pooled income fund's participants during a previous payment period. This function corrects regular distributions, but not adjusting distributions.

To compute the corrective amount for a fund participant, Correct Past Distributions calculates the amount the participant should have received, given the income units allocable to the participant during the specified error period and subtracts the gross payment record for the participant during the same error period. The amount the participant should have received is calculated the same way as a regular distribution, but uses the current data stored for the error period rather than the data that existed at the time the distribution was originally computed.

See Distribution Methods and Calculations Explained for details on how distribution amounts are calculated under a variety of conditions.

Who gets the corrective distribution
GiftWrap's general approach to deciding who gets a corrective distribution is as follows:

Anyone who received a payment during the period being corrected who is still a beneficiary of the gift that made the payment, gets the corrective amount.
Anyone who received a payment during the period being corrected but has since voluntarily severed his interest in the gift also has given up his right to any corrective amount in favor of the remainderman.
Anyone who received a payment during the period being corrected, but has died since, still gets the corrective amount. The payment should be sent to the executor of the beneficiary's estate in this case.

Participant is alive and gift is current
If a participant who received an incorrect distribution in a past period is still alive during the period in which the correction is being made and the gift has not terminated, the participant gets the corrective distribution.

Participant is alive and gift is severed
If a participant who received an incorrect distribution in a past period is still alive during the period in which the correction is being made, but has severed his interest in the gift in the meantime, the remainderman gets the corrective distribution.

Participant is deceased and gift is terminated
If a participant who received an incorrect distribution in a past period is deceased prior to the period in which the correction is being made, terminating the gift, the deceased (i.e., the deceased's estate) gets the corrective distribution.

Participant is deceased and survivor beneficiary is alive
If a participant who received an incorrect distribution in a past period is deceased prior to the period in which the correction is being made, transferring payments to a surviving beneficiary, the deceased (i.e., the deceased's estate) gets the corrective distribution.

Actual Distribution Example
Assume a fund has three participants: Joe and Jane Smith are both active beneficiaries of a gift that purchased 100 units several years ago. Fred Jones is the sole active beneficiary of a gift that purchased 50 units on 6/1/2003. Unfortunately, Fred's gift was not entered in GiftWrap when you made your 6/30/2003 distribution, so the Smiths' payments included his income by mistake. You have since entered Fred's gift and want to store corrective amounts for your 9/30/2003 distribution. You distributed $1,000 for period 2 of 2003. The fund distributes quarterly and prorates income for gifts made during each payment period.

Compute total income units for the error period

Joe Smith = 100 / 2 = 50
Jane Smith = 100 / 2 = 50
Fred Jones = 50 x (61/92) = 33.1522
Total income units 133.1522

Compute fraction of total income units assigned to each beneficiary

Joe Smith = 50 / 133.1522 = .3755
Jane Smith = 50 / 133.1522 = .3755
Fred Jones = 33.1522 / 133.1522 = .2490

Compute correct payment to each beneficiary

Joe Smith = .3755 x $1,000.00 = $375.50
Jane Smith = .3755 x $1,000.00 = $375.50
Fred Jones = .2490 x $1,000.00 = $249.00

Subtract stored payment for error period from correct payment in (3)

Joe Smith = $375.50 - $500.00 = -$124.50
Jane Smith = $375.50 - $500.00 = -$124.50
Fred Jones = $249.00 - $0.00 = $249.00

Note: If the fund were set to allocate full income to gifts made during each payment period, Fred Jones should have received 50 income units for the error period distribution and each of the three beneficiaries should have received $333.33. Corrective amounts for period 3 would be computed accordingly.

If the fund were set to allocate no income to gifts made during each payment period, Fred Jones should have received 0 income units for the error period distribution and received no income for the period, exactly what he did receive. All corrective amounts would be $0 in this case.

Estimated Distribution Example

Distribution during a regular period
Assume a fund has three participants: Joe and Jane Smith are both active beneficiaries of a gift that purchased 100 units several years ago. Fred Jones is the sole active beneficiary of a gift that purchased 50 units on 6/1/2003. Unfortunately, Fred's gift was not entered in GiftWrap when you made your 6/30/2003 distribution, so the Smith's got his income by mistake. You have since entered Fred's gift and want to store corrective amounts for your 9/30/2003 distribution. You distributed $7.00 per unit for period 2 of 2003 and plan to do so for period 3 too. The fund distributes quarterly and prorates income for gifts made during each payment period.

1) Compute correct income units for each beneficiary in error period

Joe Smith = 100 / 2 = 50
Jane Smith = 100 / 2 = 50
Fred Jones = 50 x (61/92) = 33.1522
Total income units 133.1522

2) Compute correct payment to each beneficiary

Joe Smith = 50 x $7.00 = $350.00
Jane Smith = 50 x $7.00 = $350.00
Fred Jones = 33.1522 x $7.00 = $232.07

3) Subtract stored payment for error period from correct payment in (2)

Joe Smith = $350.00 - $350.00 = $0.00
Jane Smith = $350.00 - $350.00 = $0.00
Fred Jones = $0.00 - $232.07 = -$232.07

Note: If the fund were set to allocate full income to gifts made during each payment period, Fred should have received 50 income units for the distribution and his corrective amount would be $350.00.

If the fund were set to allocate no income to gifts made during each payment period, Fred should have received 0 income units for the error period distribution and received no income for the period, exactly what he did receive. All corrective amounts would be $0 in this case.