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The Best Kept Secret in Planning (And Why It's Important To You)
We continue to write about the re-emergence of the Pooled Income fund. Anybody paying attention?
Every now and then the planets align in a certain way to create a unique moment in the galaxy. The same is true in the world of planning; a combination of sustained low interest rates, advances in technology and a few visionary leaders – we are in such a period. On these rare occasions, advisors have the opportunity to truly help their clients more effectively plan – for their families, for society, and make some money at the same time.
What is this Unicorn strategy? Drum roll, please… It is simply a Total Return Pooled Income Fund – we call it the IGNĪT Plan™.
A pooled income fund is a trust run by a charity that receives donations from multiple donors and pays out an income to those donors, generally for their lifetimes. Though the laws and regulations for this charitable planning tool were enacted in 1969, most of the past funds have been dreary, boring and unpopular. Why? Because the plans are run by charities accepting mostly cash contributions and paid out only interest, dividends, rents and royalties to their donors. Furthermore, the way the income tax deductions are calculated for the donor (a complicated IRS-created formula) meant that once funds were more than three years old, they became terribly unattractive.
Enter the modern IGNĪT Plan™ – run by a charity that is more interested in helping donors and advisors and is itself organized as a community foundation charged with a mission is to support other charities, not its own programs. The result is a pool where the donor can contribute cash, appreciated stock, closely held business interests, real estate or even artwork. Plus, the fund also will pay out short-term capital gains as income and up to 50% of post-gift realized long-term gains. This allows for a much more stable and predictable income to the donors. Better yet, the current advisor can continue to manage his donor’s funds.
And since the fund is less than three years old, the complicated IRS formula, based on the current low interest rate environment, allows for huge charitable income tax deductions. So huge, in fact, that it is possible to include multiple generations in the income stream and still benefit from a giant income tax savings. Think of the IGNĪT Plan™ as a charitable remainder trust on steroids.
Here’s an example: A couple, both aged 65, have three children ages 45, 43, and 37. They transfer a 2-million piece of real estate to an IGNĪT Plan™ which will pay them both income for as long as they are alive and then pay their three children as long as they are alive. The charitable income tax deduction for this couple would be 1.2 million. The IGNĪT Plan™ can sell the real estate and pay NO capital gains tax.
Say that couple then uses the tax savings to purchase a 2-million survivorship policy and still receives close to 1.2 million of income during their lifetimes. The children will then receive more than 1.6 million in income, the proceeds of the survivorship policy, while the IRS has been completely disinherited.
It’s time to let this secret out and put it to good use. It is ideal for clients selling appreciated assets. It is ideal for clients who want to do multi-generational planning. It is ideal for clients who want to provide an asset protected, creditor-protected income stream for their children and, perhaps, their grandchildren. It is great for those looking to convert their IRA to a Roth and need to offset some of the income tax.
Got someone with a big bonus or other large liquidity event? How about a young professional athlete who wants to secure his future? Yep, the secret is out – Now it’s time to take action.
Give me a call at (704) 698-4055 or email me at firstname.lastname@example.org with your situation that you think may benefit.