Charitable remainder trust: sell the asset, skip the tax at the sale

The numbers

Picture an owner holding $2 million of stock bought for $200,000. They want to sell it and live on the income. We compare selling it directly with giving it to a charitable remainder unitrust that pays 5% of its value each year.

For illustration purposes. Tax law may change, which may change these calculations slightly.

Personal tax at the sale (federal)

With the trust, the full $2 million keeps working for you, and the $428,400 isn’t due at the sale. You pay tax on the payments as you receive them, so the gain is spread over many years. You also get a charitable deduction in the year you fund the trust, based on your age, the payout rate, and IRS interest rates. Oklahoma tax is figured separately.

The trade-off: at the end of the trust, the remaining assets go to charity. Some families pair a CRT with life insurance to replace that value for their heirs. We model whether it fits your goals.

How it works

1. Create the trust. Your attorney drafts an irrevocable charitable remainder trust. You choose the payout rate (5% to 50% of trust value), the term (your life, your and your spouse’s lives, or up to 20 years), and the charities.
2. Contribute the asset. Appreciated stock, real estate, or sometimes a business interest, before any sale is committed.
3. The trust sells it. The trust doesn’t pay income tax on the sale, so the full price is reinvested.
4. You receive payments. A unitrust (CRUT) pays a fixed percentage of the trust’s value each year; an annuity trust (CRAT) pays a fixed dollar amount.
5. Charity receives the remainder. At the end of the term, what’s left goes to the charities you named, or to your donor-advised fund or family foundation.

Who it fits

• Owners selling highly appreciated stock, real estate, or a business interest who want steady income.
• Owners who already plan to leave part of their estate to charity.
• Owners in a high-income year who can use a large charitable deduction.

When it doesn’t work

• When the goal is to pass the full asset to your children.
• Assets with little gain, or debt-financed property, which can create problems inside the trust.
• When a buyer has already signed a binding agreement to buy the asset.

The rules

• The 10% test. The value going to charity, figured when the trust is funded, must be at least 10% of what you contribute.
• How payments are taxed. Payments are taxed in layers: ordinary income first, then capital gain, then tax-exempt income, then return of principal. The 3.8% net investment income tax can apply to the gain portion.
• The deduction. The deduction is the present value of the charity’s remainder. For appreciated property going to public charity, it’s generally limited to 30% of AGI, with a five-year carryforward. The 2026 rules on itemized deductions apply.
• No pre-arranged sale. If the sale is legally committed before the transfer, the IRS can tax you on the gain anyway.
• Annual filings. The trust files Form 5227 every year and needs a trustee.

Risks and costs to weigh

• It’s permanent. You can’t take the assets back or change the remainder away from charity.
• Investment results. With a unitrust, your income rises and falls with the trust’s value.
• Setup and running costs. Legal drafting, trustee and investment fees, appraisals for non-stock assets, and yearly returns.
• A team effort. A CRT needs an estate attorney, a trustee, and your tax strategist working from the same numbers.

How we handle it for clients

With a Cannon & Brown tax plan, we compare a charitable remainder trust with your other options for a big gain: selling outright, an installment sale, a donor-advised fund, or holding the asset. We model the payments, the deduction, and the tax on each payment over time, and work with your attorney on the timing. Because our technology keeps your numbers current, we can show you the side-by-side with your real numbers before you commit. Your tax strategist reviews every recommendation.

Illustrative example. The owner and figures on this page are hypothetical, used to explain how the strategy works. They are not a client and not a promise of results. The example assumes $2 million of publicly traded stock with a $200,000 basis held more than a year, the 20% capital gains and 3.8% net investment income tax rates on a direct sale, and a 5% unitrust payout in year one. It doesn’t show the charitable deduction, which depends on your age and IRS interest rates when the trust is funded. This page is educational and is not tax or legal advice for your situation; tax rules and limits change.