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Pooled Trusts

Pooled Trusts

It used to be that only the wealthy that could take advantage of the tax breaks derived from charitable trusts when they did their estate planning. Not anymore. By pooling money among a group of people, however, you can set up your own charitable trust for very little – often with starting costs between $5,000 and $10,000.

Using Charitable Trusts

One of the great parts about pooled charitable trusts is that the charity itself, or an investment company, sets up the trust and is responsible for accepting donations from those who wish to give. Much like a mutual fund, these investments are then pooled together and invested in the stock market. When the fund gets sufficient returns back on the investment, that money is paid out to you.

Once you meet the minimum donation amount which is set by the charity, you may continue to make additional donations to the fund. This is great for people who do not have large amounts of cash or a large investment portfolio. Many people use pooled charitable trusts as an alternate means for income during their retirement, just by donating small amounts to the trust over the years.

How Does It Work?

In addition to the normal donations of cash, you can also donate stocks and bonds to such trusts, so long as there are not tax-exempt ones. However, tangible property such as cars and real property are not allowed to be donated.

Reduce Your Taxes

Each time you donate to a pooled charitable trust, you may take an income tax deduction. However, you cannot deduct the full amount you donated to the trust. You must keep in mind that you are deriving an income from the trust. The amount that you are allowed to deduct will depend on how long the beneficiary is expected to receive income, as well as the yield of the fund. Factors like these are considered when the fund is determining future payments.

The charity is required to pay you or the beneficiaries you have named in an amount determined by the value of your total contribution as well as the fund’s yearly earnings. This income will be taxed just like normal income, but these payments can be deferred. For instance, many people who have contributed to pooled charitable trusts elect to defer all payments until they reach 65 or 70 in order to have additional income during their retirement.

This can all be show clearly by using an example. Suppose John has worked hard in his company over the past 20 years and is now making $100,000 a year. John owes much of this success in his job to being able to relax in his favorite park, so he decides to donate $10,000 to the park’s pooled charitable trust. John will be able to deduct a portion of this $10,000 from his income taxes depending on his life expectancy as well as how well the fund has recently performed.

For the next 15 years, until John loses his job, he makes regular donations in varying amounts. By this time, all of the contributions he has made to the trust are worth a total of $250,000. John can then collect any payments he has deferred as well as receive the interest income on this amount.
And when John dies, the charity that runs the fund will receive the balance of the gift outright, without having to go to court to argue over the owner.

Because of the unique nature of pooled charitable trusts, you are allowed to donate securities that have increased in value to a pooled charitable trust. By doing so, you are converting those assets into a money maker for you, and you can do so without paying the capital gains tax. The charitable trust can also avoid the capital gains tax on donated property if that property had been held by the donor for at least a year before donation. It is for this reason that well-performing securities that have been held for over a year are the preferred gift to a pooled charitable trust. The charity is allowed to sell them at present-day market value and pay no capital gains tax. Because there is no tax to pay, that means a larger investment into the trust, which means more income for you.

Pooled Trust Lawyer Free Consultation

When you need help with a pooled trust or estate planning, please call Ascent Law for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506