Summer Reading Series 1 of 3 - Strategies for Concentrated Stock

Selling a Concentrated Position Using a Charitable Remainder Trust

Presented by Beata Dragovics

 

Multiple strategies are available to help owners of concentrated stock positions mitigate risk and minimize taxes, but a charitable remainder trust (CRT) could do those things and more. A CRT provides the ability to:

 

  • Sell the shares in a tax-efficient manner
  • Receive an income tax deduction
  • Reduce the risk of ownership
  • Reallocate into a more suitable portfolio
  • Gain a lifetime stream of income
  • Benefit the stock owner’s favorite charitable organization

 

What is a CRT?

A CRT is an irrevocable split-interest trust created to benefit two types of beneficiaries:

 

  1. A noncharitable income beneficiary (e.g., the concentrated stock owner), who is entitled to a stream of income throughout the trust term
  2. A remainder beneficiary (i.e., a charitable organization), which receives all of the remaining trust assets at the end of the trust term

 

How does the CRT work?

Because a charitable organization is the remainder beneficiary, a CRT is tax-exempt, so it can sell assets without incurring the taxes otherwise associated with such a sale. Therefore, it is an excellent candidate for receiving and liquidating contributions of highly appreciated concentrated stock positions.

 

Additional potential benefits of a CRT

  • Trust owners receive an income stream for a term of years (up to 20) or for their lifetime.
  • After transferring the shares, the owner receives a federal income tax deduction equal to the present value of the charitable beneficiary’s remainder interest. Some states also offer an income tax deduction.
  • Although the income stream is taxable to the recipient, the tax character of the income may comprise long-term capital gain versus ordinary income. This is because of the unique accounting associated with the CRT.
  • The CRT can meet the owner’s charitable planning goals.
  • Assets remaining in the CRT at trust expiration, or when the income beneficiary dies, pass to charity and are not included in the owner’s taxable estate.

 

Considerations

For those who own a concentrated stock position, the CRT can be an excellent strategy to liquidate a portion of shares to reduce risk, access income, reduce the taxable estate, and benefit a charitable organization of choice. Implementing a CRT requires the services of a qualified estate planning attorney.

 

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

 

###

 

Beata Dragovics is a financial advisor located at 376 Boylston Street, Boston, MA 02116. She offers securities as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Advisory services offered through Freedom Trail Financial, LLC are separate and unrelated to Commonwealth. Freedom Trail Financial, LLC does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation. Beata Dragovics can be reached at 617 247-1112 or at [email protected].

 

© 2018 Commonwealth Financial Network®