How to Use Charitable Trusts for Sale Proceeds
Ron McCoy shares strategic insights on using charitable trusts to minimize taxes and maximize philanthropic impact following a business sale.
For business owners and high-net-worth individuals, a liquidity event—such as selling a business—offers both a tremendous opportunity and a significant tax challenge. Charitable trusts provide a powerful, tax-advantaged way to align philanthropic goals with financial security, allowing you to make a lasting impact while managing tax exposure on major sales.
Why Charitable Trusts Matter Post-Sale
With careful planning, charitable trusts can reduce capital gains taxes, create ongoing income streams, and support meaningful causes. For sellers who plan ahead, a liquidity event can become a cornerstone of legacy-building for family and community alike.
Real-World Example: Blending Philanthropy and Tax Efficiency
When a tech entrepreneur sold his company for $20 million, he allocated $5 million to a Charitable Remainder Trust (CRT). This allowed him to defer capital gains taxes, receive annual income distributions, and ultimately fund scholarships at his alma mater. The strategy minimized taxes while achieving a personal mission.
Source: Fidelity Charitable – Benefits of CRTs
Key Advantages of Charitable Trusts
- Capital Gains Deferral: Donating appreciated assets to a CRT allows the trust to sell them and defer capital gains tax while providing the donor with an income stream.
- Income Stream Creation: The trust pays out regular income to the donor (or other beneficiaries), often for life or a set term.
- Philanthropic Legacy: At the end of the trust’s term, remaining assets go to chosen charities, creating long-term impact and supporting causes you value.
Case Study: Leveraging a CRT for Maximum Impact
One business owner who sold her firm for $8 million contributed $2 million to a CRT. She secured valuable tax benefits and a lifetime income stream. After 20 years, the remainder funded a local community initiative—helping her achieve both her financial and philanthropic goals.
Actionable Tips for Using Charitable Trusts
- Define Your Goals: Clarify both financial and philanthropic objectives early in your planning.
- Select the Right Trust: Choose between a Charitable Remainder Trust (CRT) and a Charitable Lead Trust (CLT) based on your desired income and legacy outcomes.
- Coordinate with Advisors: Work with legal, tax, and investment professionals to ensure the trust is structured for compliance and maximum benefit.
Professional Guidance for Charitable Planning
Charitable trusts are sophisticated tools that can maximize the value of a liquidity event—reducing taxes, providing income, and supporting the causes that matter most to you. With the right planning, your sale can fund both your family’s needs and your legacy of giving.
