One of the most powerful — and often overlooked — tools for addressing these challenges is the Charitable Remainder Trust (CRT). When structured thoughtfully, a CRT can help you diversify concentrated positions, reduce capital gains taxes, generate a reliable income stream, support charitable causes, and create meaningful estate planning advantages — all at once.

If you’re an executive or key employee looking to unlock and redeploy wealth tied up in company stock while advancing both personal and philanthropic goals, a CRT deserves a place on your radar.

What Is a Charitable Remainder Trust?

A Charitable Remainder Trust (CRT) is an irrevocable trust that allows you to convert a highly appreciated asset — like company stock — into a diversified, income-producing portfolio while securing a charitable legacy.

Here’s how it works in practice:

1. You transfer appreciated assets (such as vested RSUs, shares acquired from stock options, or concentrated company stock) into the CRT.
2. The trust sells those assets — typically without triggering immediate capital gains tax, thanks to its tax-exempt status.
3. You receive income from the trust for a specified term (up to 20 years) or for life, depending on how the CRT is structured.
4. At the end of the trust term, the remaining assets (the “remainder”) are distributed to one or more charitable organizations you’ve chosen.

This combination — tax deferral, income generation, charitable giving, and wealth diversification — makes CRTs particularly valuable for individuals whose wealth is heavily tied to a single stock position.

Why CRTs Are a Powerful Strategy for Concentrated Equity

For executives with substantial equity compensation, CRTs address three of the most pressing challenges: diversification, taxation, and wealth transfer.

1. Deferral (and Reduction) of Capital Gains Tax

One of the biggest hurdles in selling concentrated stock is the capital gains tax liability. If your company’s stock has appreciated significantly, selling it outright can trigger a tax bill of 20% federally — plus potential 3.8% net investment income tax and state taxes, depending on your jurisdiction.

Because a CRT is a tax-exempt entity, it can sell the contributed stock without incurring immediate capital gains tax. This means the full, pre-tax value of the proceeds can be reinvested in a diversified portfolio inside the trust. As a result, your assets continue working for you rather than being diminished by taxes at the outset.

2. Diversification Without Immediate Tax Penalty

Concentrated equity positions are inherently risky. They expose your portfolio to company-specific risks — from market volatility and sector downturns to leadership changes and competitive pressures. Yet many executives hesitate to sell because of the tax consequences.

By contributing stock to a CRT before selling, you can diversify your holdings without paying capital gains tax upfront. This allows you to reposition your wealth into a more balanced portfolio — one that aligns with your broader financial goals, risk tolerance, and income needs — while still benefiting from the full proceeds of the original investment.

3. A Reliable Income Stream

Another major advantage of a CRT is that it converts a non-income-producing asset (like company stock) into a predictable income source. The trust pays you (or other named beneficiaries) income annually, either for life or for a set term. This can be especially valuable as you approach retirement, when income replacement becomes a priority.

There are two primary types of CRTs, each with different income characteristics:

• Charitable Remainder Annuity Trust (CRAT): Pays a fixed dollar amount annually, regardless of trust performance.
• Charitable Remainder Unitrust (CRUT): Pays a fixed percentage of the trust’s value each year, which means income can fluctuate based on market performance.

CRUTs are often preferred for equity compensation scenarios because they allow you to capture growth potential while still receiving regular distributions.

Additional Advantages Beyond Tax and Income

While tax deferral, diversification, and income generation are the most widely discussed benefits, CRTs offer additional advantages that are particularly relevant to high-net-worth individuals and executives.

4. Immediate Charitable Deduction

When you transfer assets into a CRT, you’re making a partial charitable gift — and the IRS rewards that with an immediate income tax deduction. The deduction amount is based on the present value of the remainder that will eventually go to charity, calculated using actuarial tables and prevailing interest rates.

This deduction can offset other taxable income, creating additional tax efficiency in the year the CRT is funded.

5. Estate Tax Reduction

Because the remainder assets in the CRT ultimately go to a qualified charitable organization, they are removed from your taxable estate. This can significantly reduce future estate tax liability — an increasingly important consideration as federal estate tax exemptions are scheduled to sunset in 2026, potentially cutting the current exemption in half.

6. Philanthropic Legacy and Family Involvement

Beyond financial and tax advantages, CRTs allow you to define your charitable impact in a highly intentional way. You can designate one or multiple charities, establish a family foundation, or even direct the remainder to a donor-advised fund (DAF) for ongoing philanthropic flexibility.

For many executives, this becomes a meaningful way to involve the next generation in charitable decision-making, teaching stewardship and legacy planning alongside wealth transfer.

A Practical Example: From Concentration to Diversification and Legacy

Consider the following scenario:

• An executive holds $10 million in highly appreciated company stock, acquired over 15 years through RSUs and stock options.
• The cost basis is just $1 million, meaning a direct sale would generate $9 million in capital gains — resulting in roughly $2.5 million in federal and state taxes.
• Concerned about diversification and nearing retirement, the executive instead transfers the stock into a Charitable Remainder Unitrust.

Here’s what happens:

• The CRT sells the $10 million position without immediate capital gains tax and reinvests the proceeds into a diversified portfolio.
• The executive receives 5% annual income from the trust — about $500,000 per year — for life.
• The executive receives an immediate charitable deduction based on the remainder’s actuarial value (often 30%–40% of the contributed assets).
• Upon the executive’s death, the remainder — potentially $8 million or more — passes to designated charitable organizations.

In this example, the executive accomplishes multiple goals simultaneously:

• Diversifies wealth without triggering a large tax bill
• Creates a lifetime income stream
• Reduces estate tax exposure
• Leaves a meaningful philanthropic legacy

Key Considerations and Trade-Offs

While CRTs offer powerful benefits, they’re not a one-size-fits-all solution. Understanding the trade-offs is essential before incorporating one into your financial plan.

Irrevocable Structure

A CRT is irrevocable — once you fund it, you cannot take back the assets. This means you should only contribute assets you’re certain you no longer need for personal liquidity.

Loss of Step-Up in Basis

Assets transferred into a CRT do not receive a step-up in cost basis at death. This isn’t typically a concern if you plan to sell those assets within the CRT (since the trust avoids capital gains tax initially), but it’s an important factor to consider in broader estate planning.

Beneficiary Considerations

Income from the CRT can only be paid to the trust’s designated beneficiaries. While you can name family members, this must be done at trust creation — and you cannot later add or remove income beneficiaries.

Administrative Complexity

CRTs require careful legal drafting, annual filings, ongoing investment management, and strict adherence to IRS rules. Working with experienced estate planning attorneys, tax advisors, and investment managers is critical to ensure compliance and maximize benefits.

When a CRT Makes the Most Sense

Charitable Remainder Trusts are not appropriate for every situation, but they can be exceptionally effective when:

• You hold highly appreciated company stock and want to avoid immediate capital gains tax.
• You’re overexposed to a single stock and need to diversify without losing value to taxes.
• You’re approaching retirement and want to convert equity into reliable income.
• You’re charitably inclined and want to create a lasting philanthropic legacy.
• You want to reduce estate tax exposure while retaining lifetime income.

Conclusion: Turning Concentration Into Opportunity

Concentrated stock positions are both a blessing and a challenge. They often represent years of hard work and success — but they can also create tax traps, portfolio risk, and estate planning complexity.

A Charitable Remainder Trust is one of the most sophisticated strategies available for addressing all of those issues simultaneously. By leveraging the CRT’s tax advantages, diversification potential, and charitable impact, executives and key employees can transform concentrated equity into a multi-purpose wealth strategy — one that supports their lifestyle today, reduces their tax burden, and builds a philanthropic legacy for decades to come.

If your net worth is heavily tied to your company stock, now is the time to explore how a CRT could fit into your broader wealth plan. With proper planning and expert guidance, this single strategy can turn concentrated risk into diversified opportunity — while doing good in the process.