In a large bowl, use an electric mixer to beat the softened cream cheese and butter together until completely smooth and fluffy (about 2-3 minutes).

Turn the mixer to low and gradually add the sifted powdered sugar. Once incorporated, add the vanilla extract and beat on medium speed until creamy.

Gently fold in the 1/2 cup of finely chopped shredded coconut using a rubber spatula.

Cover the bowl tightly with plastic wrap and chill in the refrigerator for at least 2 hours until the mixture is firm.

Line a baking sheet with parchment paper. Using a small cookie scoop, portion the chilled mixture and roll into smooth, 1-inch balls. Place them on the prepared baking sheet and chill for another 30 minutes.

Divide the white chocolate or candy melts into separate microwave-safe bowls (one for each color you plan to make). Microwave at 50% power in 30-second bursts, stirring in between, until melted and smooth. Stir in coconut oil to thin if needed.

Using a toothpick, add a tiny amount of gel food coloring to each bowl and stir well to create soft pastel colors.

Place the remaining 1 1/2 cups of shredded coconut in a shallow dish. Dip one chilled truffle into the colored chocolate using a fork, tap off the excess, and immediately drop it into the dish of shredded coconut.

Roll the truffle gently until fully coated in coconut, then place it back on the parchment-lined baking sheet. Repeat with the remaining truffles.

Allow the truffles to sit at room temperature for 15-20 minutes until the chocolate shell has completely set before serving.