How to Use Charitable Trusts to Slash Your Tax Bill

For $1M+ investors, taxes are a relentless adversary, siphoning wealth through capital gains, ordinary income, and the 3.8% Net Investment Income Tax (NIIT). Yet, charitable trusts—sophisticated vehicles blending philanthropy with tax efficiency—can turn this battle in your favor. By strategically gifting assets, you can slash your tax bill, preserve capital, and cement a legacy.

As Ron McCoy, a fiduciary advisor with over 40 years outsmarting markets from Black Monday to 2008, I’ve seen too many tycoons overpay the IRS due to ignorance of these tools. My Freedom Capital Playbook demands precision: use charitable trusts to dominate your tax strategy.

This article explores how Charitable Remainder Trusts (CRTs) and Charitable Lead Trusts (CLTs) can transform your $1M+ portfolio, offering elite tactics to maximize wealth and impact.

The Power of Charitable Trusts

Charitable trusts are irrevocable trusts that allocate assets to both charitable and non-charitable beneficiaries, delivering tax benefits under IRS rules. The two primary types are:

• Charitable Remainder Trusts (CRTs): You or your heirs receive income (fixed or variable) for a term or lifetime, with the remainder going to charity. You get an immediate income tax deduction based on the charity’s projected share, and capital gains taxes are deferred on contributed assets.
  
• Charitable Lead Trusts (CLTs): A charity receives income for a set period, with the remainder reverting to you or heirs. CLTs reduce gift/estate taxes, ideal for legacy planning.

A 2024 Fidelity Charitable report estimates that CRTs can save 20–30% in taxes for high-net-worth donors, while CLTs can cut estate taxes by 40% on $10M+ estates. Ron’s fiduciary approach leverages these trusts to optimize after-tax wealth, pairing them with portfolio strategies like covered calls to enhance income. The key: structure trusts to align with your income needs, tax brackets, and philanthropic goals.

Case Study: The $12M CRT Triumph

Consider Michael, a 65-year-old tech CEO who retired in 2023 with a $12M portfolio: $8M in appreciated tech stocks (low basis, $6M unrealized gains), $3M in an IRA, and $1M in real estate. Selling the stocks outright would trigger $1.2M in capital gains taxes (20% federal, 3.8% NIIT, no state tax in Florida).

His advisor suggested a lump-sum sale, costing $1.5M in taxes with IRMAA surcharges. Ron intervened, recommending a Charitable Remainder Unitrust (CRUT). Michael funded the CRUT with $5M in stocks, deferring capital gains taxes and securing a $1.4M income tax deduction (based on a 5% payout rate, 20-year term).

The CRUT paid him $250K annually (5% of trust value), rebalanced into munis, and donated the remainder to his chosen charity. Over 10 years, Michael saved $900K in taxes and boosted his income stream. Ron’s mantra: “Give smart, keep more.”

Five Elite Tactics for Charitable Trusts

High-net-worth investors must wield charitable trusts with strategic precision. Here are five tactics to slash your tax bill:

1. Fund CRTs with Appreciated Assets: Contribute low-basis stocks or real estate to a CRT to defer capital gains taxes. Reinvest proceeds into diversified assets, like dividend aristocrats, for steady income.
   
2. Maximize CRT Deductions: Structure CRTs with longer terms (e.g., 20 years) or lower payout rates (e.g., 5%) to increase the charitable deduction, offsetting AGI up to 30% (cash) or 20% (appreciated assets).
   
3. Use CLTs for Estate Tax Cuts: Fund a CLT with high-growth assets to pay charities upfront, reducing your taxable estate. Pass the remainder to heirs tax-free, ideal for $10M+ portfolios.
   
4. Pair with QCDs: If over 70½, combine CRTs with Qualified Charitable Distributions (QCDs) from IRAs to satisfy RMDs tax-free, further lowering AGI and avoiding IRMAA.
   
5. Automate Trust Management: Engage trust companies (e.g., Fidelity Charitable) to handle payouts and IRS filings. Ron’s rule: “Outsource paperwork, not strategy.”

Actionable Tips from Ron McCoy

• Audit Your Portfolio for Low-Basis Assets: Identify stocks or properties with high unrealized gains for CRT funding. Ron advises: “Your biggest gains are your biggest tax shields.”
  
• Model Tax Impacts: Use software like TurboTax or RightCapital to project CRT/CLT deductions against 2025 brackets (37% at $487,451+ MFJ). Avoid overfunding to preserve liquidity.
  
• Engage a Trust Attorney: Work with a specialist to draft IRS-compliant trusts. Ron’s Oxford Club network recommends attorneys versed in CRUTs and CLATs.
  
• Monitor Charitable Impact: Select charities aligned with your values and verify their 501(c)(3) status via IRS.gov. Ron’s clients use donor-advised funds for flexibility.
  
• Reinvest Trust Income: Channel CRT payouts into tax-free munis or value stocks to compound wealth. Ron’s 2006 whale client reinvested $200K yearly this way.

Challenges and Considerations

Charitable trusts aren’t without complexities. Irrevocability locks in assets, requiring careful funding to avoid liquidity crunches—health costs average $315K for retirees (Fidelity, 2024). Market volatility can erode CRT payouts in variable trusts (e.g., CRUTs tied to asset value); Ron mitigates with diversified trust portfolios.

IRS scrutiny on trust compliance demands precise documentation, as improper deductions can trigger audits (IRS Publication 526). Estate tax benefits from CLTs hinge on interest rates (Section 7520 rates, 3.2% in 2025), which can reduce deductions in low-rate environments.

Ron counters these with stress-tested plans and hedges like covered calls for income stability. Philanthropic intent must also align—forced giving feels like a tax, not a legacy. Ron’s antidote: “Give with purpose, or don’t give at all.”

Conclusion

Charitable trusts are a tax-slaying powerhouse for $1M+ investors, blending philanthropy with wealth preservation. Ron McCoy’s 40+ years of fiduciary precision—stopping scams and slashing taxes—prove it’s about strategy, not charity alone.

Michael’s $900K tax cut shows the stakes: CRTs and CLTs can transform your tax bill. By funding with appreciated assets, maximizing deductions, and automating management, you can dominate your financial future.

Don’t let the IRS feast on your empire. Book a free Strategy Call at freedomcapitaladvisors.com to craft your charitable trust plan. 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