Should You Use a CRUT Before Selling Appreciated Stock?

Are you considering selling stock or another asset that has appreciated significantly?

Before completing the sale, it may be worth discussing whether a Charitable Remainder Unitrust, commonly known as a CRUT, could support your investment, income, tax, and charitable goals.

A CRUT is not appropriate for everyone. It is an irrevocable and complex planning strategy, and its potential benefits depend on the assets contributed, the trust’s structure, the donor’s charitable intentions, and applicable tax laws.

What is a Charitable Remainder Unitrust?

A CRUT is an irrevocable trust that provides annual payments to one or more noncharitable beneficiaries for a specified period. The beneficiaries may include the individual establishing the trust and, in some cases, other designated individuals.

The annual payment is calculated as a fixed percentage of the trust’s value, which is generally determined each year. Because the trust’s value may change, the amount distributed can also increase or decrease.

At the end of the trust term, the remaining assets pass to one or more qualified charitable organizations.

How does a CRUT work with appreciated stock?

A CRUT involving appreciated stock generally follows several stages:

1. The donor transfers the stock to the irrevocable trust before it is sold.
2. The trustee may sell the stock and reinvest the proceeds in a diversified portfolio.
3. The trust makes annual unitrust payments to the designated income beneficiaries.
4. When the trust term ends, the remaining assets pass to the selected charity or charities.

Because the trust, not the donor, sells the contributed asset, the transaction may produce different tax timing than a personal sale.

However, this does not necessarily eliminate capital-gains taxes. Payments received from the CRUT may carry taxable income to the recipient based on the trust’s income and applicable distribution rules.

The tax treatment is complex and should be reviewed with qualified tax and legal professionals before any assets are transferred or sold.

Why might someone consider a CRUT?

1. Creating a potential income stream

A CRUT provides annual payments to the designated beneficiaries for the period established in the trust agreement.

Because those payments are based on the trust’s annually determined value, the income received may vary from year to year.

2. Diversifying an appreciated position

Someone holding a concentrated stock position may want to reduce the risk associated with having substantial wealth tied to one company.

After receiving the asset, the CRUT may sell it and reinvest the proceeds across a broader portfolio without creating the same immediate tax result that may occur through a personal sale.

3. Supporting charitable goals

When the trust term ends, the remaining assets pass to the designated charitable organization or organizations.

A CRUT may appeal to individuals who want to create income while making charitable giving part of their long-term financial and estate plans.

4. Receiving a potential charitable deduction

The donor may be eligible for a partial charitable income-tax deduction when assets are transferred to the CRUT.

The potential deduction depends on factors including the donor’s age, trust term, payout percentage, asset value, applicable interest rates, and the calculated value expected to pass to charity.

Deductibility and applicable limitations should be confirmed by a qualified tax professional.

When might a CRUT make sense?

A CRUT may be worth discussing when an individual:

• Owns significantly appreciated stock or another appreciated asset
• Wants to diversify a concentrated position
• Would benefit from an ongoing income stream
• Has meaningful charitable intentions
• Can permanently commit assets to an irrevocable trust
• Does not need the contributed assets to pass directly to family members
• Understands the strategy’s costs, restrictions, and complexity
• Is working with qualified legal, tax, and financial professionals

Owning appreciated stock alone does not mean a CRUT is appropriate. The strategy must support genuine charitable objectives in addition to the donor’s income and financial goals.

What are the potential disadvantages?

Before creating a CRUT, individuals should understand that:

• The trust is irrevocable
• Contributed assets cannot generally be taken back
• The charity ultimately receives the remaining trust assets
• Annual payment amounts may fluctuate
• Investment performance is uncertain
• Distributions may create taxable income
• Legal, tax, investment, and administrative costs may apply
• The trust requires ongoing administration and tax reporting
• Beneficiaries may receive less income than anticipated
• Assets remaining for heirs may be reduced

A sophisticated strategy is not automatically an appropriate one. Its potential benefits should justify the restrictions, costs, risks, and permanent charitable commitment involved.

Why must planning happen before the sale?

The timing of the transaction is important.

Transferring an asset after a sale has already occurred, or after the donor has entered into a binding obligation to sell, may not produce the intended tax treatment.

That is why the conversation should begin before the asset is sold. The donor’s financial advisor, estate-planning attorney, tax professional, and trustee should coordinate the strategy and evaluate whether it is properly structured.

Aventura Private Wealth helps individuals, families, business owners, and executives consider how appreciated assets, charitable giving, investment diversification, income needs, and tax planning may work together. The objective is not simply to use a CRUT, but to determine whether it supports the individual’s complete financial strategy and charitable intentions.

Aventura Private Wealth, LLC (“APW”) is a Registered Investment Adviser ("RIA"). Registration as an investment adviser does not imply a certain level of skill or training, and the content of this communication has not been approved or verified by the United States Securities and Exchange Commission or by any state securities authority. APW renders individualized investment advice to persons in a particular state only after complying with the state's regulatory requirements, or pursuant to an applicable state exemption or exclusion. All investments carry risk, and no investment strategy can guarantee a profit or protect from loss of capital. Past performance is not indicative of future results.