By Harry Prabandham · Updated September 27, 2026
Estate & Legacy
Charitable Remainder Trusts for Appreciated Stock
A charitable remainder trust can sell appreciated stock without immediate capital gains tax, pay you income for years, and leave the rest to charity.
Charitable Remainder Trusts for Appreciated Stock
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What is a charitable remainder trust?
- A CRT is an irrevocable trust that pays you (or other beneficiaries) income for life or up to 20 years, then passes what remains to charity.
- The trust is generally exempt from income tax, so it can sell appreciated stock without owing capital gains tax at the sale.
- The gain is not forgiven; it is carried out to you over time as the trust makes payments.
- The projected charitable remainder must be worth at least 10% of the initial contribution under IRS actuarial tables.
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Full Guide
What is a charitable remainder trust?
- A CRT is an irrevocable trust that pays you (or other beneficiaries) income for life or up to 20 years, then passes what remains to charity.
- The trust is generally exempt from income tax, so it can sell appreciated stock without owing capital gains tax at the sale.
- The gain is not forgiven; it is carried out to you over time as the trust makes payments.
- The projected charitable remainder must be worth at least 10% of the initial contribution under IRS actuarial tables.
What is the difference between a CRAT and a CRUT?
- An annuity trust (CRAT) pays a fixed dollar amount each year and cannot accept additional contributions.
- A unitrust (CRUT) pays a fixed percentage, between 5% and 50%, of the trust's value as revalued each year.
- A net-income or "flip" unitrust can suit hard-to-sell assets like pre-IPO shares, switching to standard payouts after a triggering event such as a sale.
- Higher payout rates shrink the charity's share and the deduction, and can fail the 10% remainder test.
How are the payments taxed?
- Payments follow a four-tier order: ordinary income first, then capital gains, then tax-exempt income, then return of principal.
- Because the stock-sale gain sits in the capital gains tier, it typically flows out to you across many years of payments.
- Spreading gain over time may keep more of it in lower brackets, but that depends on your income each year.
- The trust files Form 5227 annually and issues you a K-1 showing the character of each payment.
How large is the deduction, and when can you use it?
- The deduction equals the present value of the charity's remainder, calculated with the IRS Section 7520 rate for the month of funding.
- For appreciated stock with a public-charity remainder, the deduction is generally limited to 30% of AGI, with a five-year carryforward.
- The limit drops to 20% of AGI if a private foundation can be the remainder beneficiary.
- Starting in 2026, itemized charitable deductions face a 0.5%-of-AGI floor, and top-bracket itemizers' benefit is capped at about 35%.
- Private-company stock worth over $10,000 generally requires a qualified appraisal to support the deduction.
What are the trade-offs and traps?
- The gift is irrevocable: you cannot take the principal back, and heirs receive less than if you had kept the assets.
- If a sale is already legally committed when shares are transferred, the IRS may tax you on the gain anyway.
- Legal drafting, trustee fees, appraisals, and annual filings add real cost, which matters more for smaller gifts.
- Certain income, such as debt-financed or some partnership income, can trigger a 100% excise tax inside the trust.
Key takeaways
- A CRT defers and spreads capital gains tax; it does not make the gain tax-free.
- It fits people with large unrealized gains, a need for ongoing income, and genuine charitable intent.
- Timing around an IPO or acquisition matters, so involve counsel before any sale agreement is signed.
- Rubric Advisors does not prepare tax returns or provide legal advice; confirm the design with an estate attorney and CPA.
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