How to Use Charitable Trusts to Slash Your Tax Bill

If you’re investing $1 million or more, taxes can take a serious bite out of your gains—whether through capital gains, ordinary income, or the 3.8% Net Investment Income Tax (NIIT). But charitable trusts can be a game-changer, blending smart tax strategies with your philanthropic goals. By giving assets in the right way, you can cut your tax bill, keep more of your wealth, and leave a lasting legacy.

With over four decades of experience, I’ve seen too many investors miss out because they didn’t know how to use these tools. My Freedom Capital Playbook shows you how to use charitable trusts as part of a winning tax plan.

This article explains how Charitable Remainder Trusts (CRTs) and Charitable Lead Trusts (CLTs) can boost your portfolio and your impact, along with key tactics to maximize results.

The Power of Charitable Trusts

Charitable trusts are irrevocable, meaning once you set them up, the terms can’t be changed. These trusts split your assets between charitable and non-charitable beneficiaries, creating real tax benefits. The two main types are:

• Charitable Remainder Trusts (CRTs): You or your chosen beneficiaries receive income from the trust for a set term or lifetime, then the remainder goes to charity. You get an immediate income tax deduction based on the projected charitable amount, and you can defer capital gains taxes on assets you put into the trust.
  
• Charitable Lead Trusts (CLTs): The charity gets income for a certain number of years, then the rest goes back to you or your heirs. This can lower gift and estate taxes, making it a strong option for passing on wealth.

Fidelity Charitable’s 2024 report found CRTs can save 20–30% in taxes for high-net-worth donors, while CLTs may cut estate taxes by 40% on estates over $10 million. Ron’s approach is to pair these trusts with other strategies—like covered calls—to further increase income. The real key: set up your trust to match your tax needs, income goals, and charitable wishes.

Five Elite Tactics for Charitable Trusts

To get the most from charitable trusts, high-net-worth investors need a strategic plan. Here are five key tactics:

1. Fund CRTs with Appreciated Assets: Use low-basis stocks or real estate to defer capital gains and reinvest in dividend stocks or other income-generating assets.
   
2. Maximize CRT Deductions: Choose longer terms or lower payout rates to increase your charitable deduction, letting you offset a larger share of your income.
   
3. Use CLTs to Cut Estate Taxes: Put high-growth assets into a CLT to pay charities first, lowering your taxable estate, then pass the rest to heirs with little or no estate tax.
   
4. Pair with Qualified Charitable Distributions (QCDs): If you’re over 70½, use QCDs from IRAs along with CRTs to meet RMDs tax-free and lower your adjusted gross income.
   
5. Automate Trust Management: Use trust companies to handle payouts and IRS filings, so you can focus on your overall strategy and results.

Actionable Tips from Ron McCoy

• Review Your Portfolio for Low-Basis Assets: Find the stocks or properties with the largest unrealized gains—they’re the best candidates for CRT funding.
  
• Project Tax Impacts: Use planning software to test how CRTs and CLTs will affect your tax bill, and avoid overfunding so you keep enough liquidity.
  
• Work with a Trust Attorney: Partner with an expert to set up IRS-compliant trusts. Ron recommends attorneys experienced with these strategies.
  
• Pick the Right Charities: Choose nonprofits that match your values and make sure they have 501(c)(3) status. Donor-advised funds can add flexibility.
  
• Reinvest Trust Income: Use CRT payouts for tax-free municipal bonds or value stocks to keep growing your wealth.

Challenges and Considerations

Charitable trusts can be complex. Once you fund them, those assets are locked in, so be sure you have enough liquidity for emergencies—retiree health costs, for example, average $315,000 (Fidelity, 2024). Trust payouts may drop if markets fall, so Ron recommends using diversified portfolios to smooth out returns.

The IRS requires strict documentation to maintain tax benefits, and mistakes can lead to audits or lost deductions. CLT estate tax benefits also depend on interest rates, which may shrink deductions when rates are low. Ron’s advice is to use thorough planning, reliable hedging, and to only give when it truly fits your goals. Forced giving never feels rewarding.

Conclusion

Charitable trusts are a powerful tool for wealthy investors who want to maximize both their wealth and their impact. Ron McCoy’s decades of experience prove that tax strategy—not just generosity—builds a lasting legacy.

Michael’s $900,000 tax savings show the potential: by using CRTs and CLTs with a thoughtful plan, you can turn a tax burden into a win for you and your favorite causes. Don’t let taxes shrink your empire. Book a free Strategy Call at freedomcapitaladvisors.com to get started. As Ron says, “Wealth without tax strategy is just a gift to Uncle Sam.”

Sources

1. Fidelity Charitable. (2024). Charitable Giving Trends for High-Net-Worth Donors. https://www.fidelitycharitable.org/insights/2024-giving-report.html
2. IRS. (2025). Publication 526: Charitable Contributions. https://www.irs.gov/publications/p526
3. Fidelity Investments. (2024). Retiree Health Care Cost Estimate. https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/press-release/2024-retiree-healthcare-costs-05012024.pdf
4. Schwab Charitable. (2023). Charitable Trusts: A Guide for Donors. https://www.schwabcharitable.org/resource/charitable-trusts-guide