Avoiding Capital Gains on Concentrated Stock: Use a Charitable Remainder Trust

If you've worked at a tech company, university, or research institution for several years, chances are you're sitting on a highly appreciated, concentrated stock position. It may have come in the form of:

• Early startup equity (ISOs, RSUs, or NQSOs)
• Public company stock from ESPPs or open-market purchases
• Restricted shares awarded during your tenure

Whatever the case, you're now facing a familiar challenge: how do I diversify out of this position without triggering a massive tax bill?

There's a creative yet often overlooked strategy that can help you solve this problem and support causes you care about: the Charitable Remainder Trust (CRT). Even better, there's a special variation—the Flip CRUT—that's especially powerful for those whose stock is illiquid today but may not be tomorrow.

Let's break it all down.

A Charitable Remainder Trust is a special type of irrevocable trust that allows you to:

In essence, the CRT lets you give now and receive later, all while avoiding a significant taxable gain today.

Wealthy families and major philanthropists have long used CRT strategies, but they're especially well-suited for:

• Tech workers at pre-IPO or post-IPO companies with significant unrealized gains
• Founders and early-stage employees who want to support causes, defer taxes, and create income

Here's a simplified version of how a CRT works using appreciated stock:

1. You donate stock to the CRT.
   Let's say you contribute $2 million of low-basis company stock (basis = $100,000).
2. You receive an immediate charitable deduction.
   The deduction is based on the present value of the future remainder that will be donated to charity, typically 10% or more of the donated value.
3. The CRT sells the stock tax-free.
   Because the CRT is a tax-exempt entity, it pays no capital gains tax on the sale of the appreciated stock.
4. The proceeds are reinvested.
   The CRT can now diversify the portfolio and invest in a range of income-generating assets.
5. You receive income distributions for life or a set number of years.
   This typically ranges from 5% to 8% of the trust's value, depending on the structure.
6. At the end of the term, the remaining assets go to your chosen charity.

There are two primary flavors of CRTs:

• CRAT - Fixed annual payment (annuity-style); less flexibility; good for stable income and simplicity.
• CRUT - Percentage of trust value annually; more flexibility; good for growth-focused, dynamic asset values.

While CRATs pay a fixed amount, CRUTs pay a fixed percentage of trust value—so if the investments grow, your income grows.

If your company stock is illiquid—think pre-IPO shares, restricted securities, or holdings with blackout periods—a traditional CRUT won't generate much income upfront.

Enter: The Flip CRUT

A Flip Charitable Remainder Unitrust (Flip CRUT) solves this problem by starting out as a net income CRUT (meaning it only pays income if the trust earns income) and later converting—or flipping—into a standard CRUT that pays a fixed percentage annually.

How the Flip Works

• You fund the CRT with illiquid assets (like private company stock).
• While illiquid, the trust is in "Net Income Only" mode. No income distributions are required if the assets aren't producing income.
• Once a triggering event occurs (such as a liquidity event or IPO), the trust transitions to a standard CRUT and begins making regular payments.

Trigger Events Can Include:

• An IPO or direct listing
• A public tender or M&A transaction
• A specific calendar date
• The sale of the asset within the trust

• No capital gains tax at sale - The CRT pays no tax when it sells the stock, allowing full reinvestment of proceeds.
• Charitable deduction - You receive a deduction based on the estimated present value of the charity's future benefit.
• Income tax smoothing - Instead of a large taxable gain in one year, you receive annual income payments taxed as ordinary income, capital gains, or a mix—depending on trust earnings.

A software engineer at a high-growth private company owns $5 million of company stock with a $50,000 basis. They expect the company to go public in the next 18 months.

• They establish a Flip CRUT today and contribute their illiquid shares.
• They receive an immediate charitable deduction of approximately $500,000 (depending on terms and IRS discount rates).
• Post-IPO, the shares are sold within the trust without triggering a capital gain.
• They receive 6% of the trust value each year for life (~$300,000 annually).
• The remainder goes to their alma mater and a donor-advised fund upon death.

CRTs can be combined with:

• Donor-Advised Funds (DAFs) to direct future charitable grants
• Charitable Lead Trusts for multigenerational tax planning
• Private foundations for families with complex philanthropic goals
• QSBS planning for C-corp stockholders

Charitable Remainder Trusts are one of the most powerful—and most misunderstood—tools in advanced tax planning. They offer a rare combination of:

• Tax deferral
• Ongoing income
• Philanthropic impact

And for those with concentrated equity positions, especially in private companies or IPO-ready firms, the Flip CRUT variation unlocks planning flexibility that few other strategies can match.

👉 Book a call if you're ready to explore how this could fit into your long-term strategy.