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SHHHHH–Don’t Tell Anyone

….but the best kept secret in planning has only been around since 1969. Best kept secret? What do you mean? How about a strategy that completely eliminates capital gains tax, provides a gigantic income tax deduction, distributes all its income (maybe for three generations) and is completely legal. And, by the way, if you’re the advisor managing the family’s money, you get to keep doing that. Sounds too good to be true. Why haven’t I heard about this before? What the heck is it and how do I find out more?

Well, here’s the answer. The lowly Pooled Income Fund, created in code section §642(c)(5) in 1969, and long the red headed step child of planned giving tools, has gone “beast mode.” The perfect storm of low interest rates, technology and a few charities who understand the need to be responsive to professional advisors and donors has caused the new, Total Return Pooled Income Fund (TRPIF) to be one of the most flexible, powerful and thought-provoking planning tools advisors can deploy. And, still, no one knows about them.

Long the sleepy providence of hospitals and universities who were only willing to accept cash and appreciated stock as gifts, only accept donors age sixty-five and older, only allow income for one generation, pay out only their interest, dividends, rents and royalties and insisted on sending your funds to their institutional money manager only to provide low returns and high residuals when 100% of your funds remained with them when the donor died.

It’s a totally different universe with the current TRPIF: Gifts of cash, publicly traded stock, closely held C Corps, unleveraged real estate, tangible personal property like art, cars, antiques and LLC interests can be gifted; income can be paid for one, two or three generations of income beneficiaries if they’re alive at the time of the gift; TRPIFs payout all rents, royalties dividends and interest as well as all short-term gains and up to fifty percent of post gift realized long term gains. Charitable beneficiaries are decided on by the donor, not the TRPIF trustee, so the donation goes to whatever charities the family decides on. And, by the way, if you’re the family’s advisor and managing their money, the TRPIF will allow you to keep doing just that. There’s an opportunity to keep AUM for multiple generations.

If you know a little bit about Charitable Remainder Trusts (CRTs), TRPIFs are similar. There are a few differences that are really important. No, the donor can’t be the trustee of his TRPIF as he can with his CRT. That may be a drawback. However, young donors (couples in their 40s), for instance, can’t even qualify for a CRT. And with many of the advantages of the TRPIF, you shouldn’t overlook them. Tax deductions can be greater than CRTs by a magnitude of four or five times. Probably best if you choose not to learn about the TRPIF. After all, there are a lot of clients out there that don’t know about them and that leaves more for me.


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