Definition
Life Income Pooled Trusts (LIPTs) are a type of charitable trust designed to provide a stream of income to the trust's participants while simultaneously supporting a charitable organization. In a LIPT, multiple donors contribute assets to a single trust, which is managed by a charitable organization. Each donor receives a proportionate share of the income generated by the pooled assets based on their contribution. When the donor passes away, the remaining assets in the trust are transferred to the charity. LIPTs are particularly appealing to donors who wish to support their favorite charities while also receiving income during their lifetime. They offer tax benefits, including an immediate charitable deduction for a portion of the contribution and the avoidance of capital gains taxes on appreciated assets.
FAQ
Donors can receive an immediate charitable deduction on their contribution, reduce capital gains taxes on appreciated assets, and receive income for a specified period or for their lifetime.
Income generated from the pooled assets is distributed to each donor based on their shareholding in the trust, which is determined by their initial contribution.
Typically, LIPTs are established for charitable purposes, so family members are not direct beneficiaries of the trust. However, donors can name their family members as beneficiaries of other forms of trusts or estate plans in conjunction with a LIPT.
Common Misperception
Myth
A common misconception is that life income pooled trusts offer no benefit to the donor.
Fact
In reality, donors receive not only a stream of income during their lifetime but also significant tax advantages and the satisfaction of supporting a charitable cause.