If you hold a concentrated stock position - granted at a low strike, accumulated through years at a public company, or inherited at low basis - you have a problem most of your wealth advisors describe as "diversification." That word does most of the work. What it actually means is: you are exposed to a single name, and the moment you do anything about it, the IRS takes 30% to 40% of the gain.

For an engineer with $13 million in a single public stock at near-zero basis, "diversifying" is not a sale instruction. It is a tax event of $4 million or more before the diversification can even begin. A Charitable Remainder Trust is the structure built specifically for this situation. It is not a workaround. It is the IRS-blessed way to do exactly what you want to do, in the order you want to do it.

I.The mechanic, in five steps.

A CRT works because the IRS treats a trust that has a defined charitable remainder as exempt from capital gains tax on assets sold inside the trust. That single rule is what makes everything else possible.

  1. You contribute the appreciated stock to the CRT. No sale yet. You take a partial charitable deduction in the year of contribution, based on the actuarial value of what charity is projected to receive at the end.
  2. The trust sells the stock internally. Because the trust is a qualified charitable structure, there is zero capital-gains tax on the sale. The full proceeds are available to reinvest.
  3. The trustee diversifies the proceeds into a balanced portfolio of stocks, bonds, and income-producing assets - sized to fund the income stream the trust is required to pay you.
  4. The trust pays you (and a spouse, if elected) a defined income stream for life or a term of years. Typically 5% to 7% of the trust's annual value, depending on how it is structured.
  5. At the end of the trust's term, the remainder goes to charity - the donor-advised fund, foundation, or 501(c)(3) of your choice.

The income stream is taxed as it comes out, on a four-tier ordering rule, but the concentrated tax event of the sale itself is gone entirely. You converted a single-position exposure into a diversified, income-producing portfolio without writing a check to the IRS along the way.

II.What this looks like in practice.

Consider a tech engineer in California, age 51, holding $13 million in concentrated public stock with near-zero basis. A traditional sell-and-diversify approach generates a $13M long-term capital gain, taxed at California's combined federal and state rates around 37% - or roughly $4.8M in tax. The owner is left with about $8.2M to reinvest.

The same engineer contributes $6.7M of the position to a CRT. Inside the trust, the $6.7M is sold with zero capital gains tax. The full proceeds are reinvested into a balanced portfolio. The trust is structured to distribute 7% annually - roughly $420,000 per year for life - and to grow the corpus over time. The charitable remainder, in current dollars, is projected at $4-6M to a donor-advised fund of the engineer's choosing.

Case file · Tech engineer · Age 51 · California
$420,000 / yr

Lifetime income on a $13M concentrated stock position. $6.7M moved into a Charitable Remainder Trust. Sold inside the trust with zero capital-gains tax. Diversified, distributing 7% annually, growing.

The engineer is no longer exposed to a single stock. The annual income exceeds what the original position would have produced in dividends. And the charitable remainder satisfies estate planning intent without requiring any additional structure.

III.The trade-offs - and why they matter.

A CRT is not a free option. It involves real trade-offs, and the structure only makes sense for the right owners in the right circumstances.

  • Irrevocability. Once funded, the trust cannot be unwound. The income stream and remainder beneficiary are committed.
  • Reduced principal. You no longer "own" the corpus - you own the right to the income stream. For owners whose heirs would have inherited the position outright, this is the trade-off being made.
  • Income tax on distributions. The distributions you receive are taxed under a four-tier ordering rule. Long-term capital gains rates apply to most of the income for years, but ordinary-rate components can appear.
  • Estate planning coordination. If wealth transfer is also a goal, the CRT typically pairs with a wealth-replacement life insurance trust (ILIT) - the math of which is its own conversation.
A CRT is not for someone who wants to keep the stock. It is for someone who wants out of it and was waiting for a structure that did not start with a four-million-dollar tax bill.

IV.When this fits - and when it does not.

It tends to fit when:

  • You hold a concentrated position ($3M+ typically, often much larger) with significant unrealized gain
  • You are at or approaching a life stage that values income over speculative growth
  • You have charitable intent - a DAF, a foundation, or a 501(c)(3) you genuinely want to support
  • You have other liquid assets to fund near-term spending, since CRT distributions ramp into the structure
  • You have existing or anticipated wealth-replacement for heirs, if that matters

It tends not to fit when:

  • The position is small enough that ordinary diversification works without the structure
  • You need full principal access in the medium term
  • There is no charitable intent at all - the math still works, but the optics matter
  • Family wealth transfer is the dominant goal and a simpler vehicle does the job
The practical takeaway A CRT is one of a small number of structures that genuinely lets you avoid the capital-gains tax event that comes with concentrated positions. Coordinated correctly with the rest of your plan, the income and diversification it produces can outperform a straightforward sale for the entire balance of your lifetime.
SK
Solomon Katsman Wealth Strategist · Alpha Innovation Partners · San Francisco Bay Area