Retirement and estate planning is essential, but with the seemingly endless array of investment vehicles to choose from, it can be hard to know where to start. If you want to benefit yourself and your favorite charity, you might consider a type of fund called a pooled income trust. Here’s what you need to know before setting one up.
How Pooled Income Trusts Work
As the name suggests, a pooled income trust involves multiple donors. Often, entire families contribute to the same fund.
The money in the fund is then invested by a fund manager. During their lifetimes, the people contributing to the fund receive dividends. Once they pass away, the money in the fund is donated to one or more charities chosen by the donors.
Advantages of Pooled Income Trusts
Every type of investment fund (or charitable donation) has its benefits and drawbacks. Pooled income trusts have more benefits than many similar funds.
Combining Funds Means More Investment Opportunities
You might think that pooled income trusts sound a lot like charitable remainder trusts. The two are similar, but with a charitable remainder trust, only one individual makes contributions and receives distributions. After that person’s death, the remainder of the fund is donated to a selected charity.
With a pooled income trust, multiple people contribute. The result is a large fund that opens up greater investment opportunities. That often means you’ll see greater dividends during your lifetime, and your charity of choice is more likely to ultimately receive a larger donation.
You Receive Income From the Fund
This feature is often the most attractive one to investors. It’s not often that you can make a donation to a charity and still benefit from that donation yourself! With a pooled income trust, you receive distributions for life. However, those distributions vary based on several factors:
- The fund’s performance
- Life expectancy tables as outlined by the IRS
- The number of people who receive income from the fund
- The ages of people who receive income from the fund
How often you receive your distribution depends on the individual fund. Some pay out annually or twice a year, and others may pay out more frequently.
You Might Receive an Immediate Tax Deduction
If you set up a pooled income trust, you might be able to deduct some of your donations from your taxes. Whether you can or not depends on the particulars of your trust. An experienced elder planning attorney may be able to help you set up a pooled income trust that offers you appealing tax benefits.
Are there alternatives to pooled income trusts?
Before setting up any kind of investment account, it’s wise to know about all of your options. One of the most common alternatives to a pooled income trust is something called a donor-advised fund.
With a donor-advised fund, you qualify for a tax deduction as soon as you donate, but you don’t need to designate a recipient right away. These funds are ideal if you’re hoping for a tax break but need time to select a beneficiary.
However, it’s worth noting that you don’t receive income distributions from a donor-advised fund as you do with a pooled income trust.
Create Your Legacy With Us
If you want to benefit from income distributions during your lifetime and also support your favorite charities once you have passed on, a pooled income trust may be right for you. At Merlino & Gonzalez in Staten Island, we help you plan for the future so you and your loved ones can enjoy peace of mind. Reach out to us for a consultation today.