Sell the Business, Pay Zero Capital-Gains Tax This Year, and Collect a Paycheck From the Proceeds for Life. Here’s the Trust That Does All Three

If you own a business, a concentrated stock position, or any highly appreciated asset you are ready to sell, there is an IRS-blessed trust that lets the sale happen without a capital-gains tax bill hitting this year, pays you a check for the rest of your life, and hands what is left to charity when you die. It is called a Charitable Remainder Trust, or CRT, and it has been sitting in the tax code for decades under 26 U.S. Code §664. Sell the business, defer the tax, collect income for life. Yes, it is real.

What the Trust Actually Does

You transfer the appreciated asset (private company shares, C-corp stock, real estate, a concentrated public stock position) into an irrevocable trust. The trust, which is tax-exempt, sells the asset. Because you no longer own it at the moment of sale, no capital-gains tax hits your 1040 that year. The full pre-tax proceeds get reinvested inside the trust, and the trust pays you (or you and a spouse) an income stream for life or a fixed term of up to 20 years. Whatever is left goes to the charity you named. You also get a partial charitable income tax deduction in the year of the gift, based on the present value of the remainder interest the charity will eventually receive.

Two flavors exist. A Charitable Remainder Annuity Trust (CRAT) pays a fixed dollar amount every year. A Charitable Remainder Unitrust (CRUT) pays a fixed percentage of the trust’s annually revalued assets, so your paycheck moves with the portfolio.

Why This Works Right Now

The size of your upfront charitable deduction is calculated using the IRS Section 7520 rate, which is pegged to the 10-year Treasury yield. That yield sits at 4.68% as of August 12, 2026, near the high end of its 12-month range. Higher 7520 rates generally mean a bigger charitable deduction on a CRAT and a more generous assumed growth rate on the remainder calculation. This is a friendlier rate environment for funding a CRT than most of the last decade.

The Reality Behind the “Zero Tax” Headline

The trust itself owes no capital-gains tax on the sale. You, the income beneficiary, are not off the hook forever. CRT distributions come out under a four-tier ordering system: ordinary income first, then capital gains, then tax-exempt income, then return of principal. The embedded gain gets taxed to you gradually as payments arrive over decades. This is deferral and spreading, not permanent elimination. On a large gain, spreading a bill across 20 or 30 years of payouts while the untaxed principal compounds is a significant advantage.

Who Can Use It, and Who Cannot

C-corporation stock, LLC interests, partnership interests, real estate, and publicly traded securities generally work. S-corporation stock does not. A CRT is not a permitted S-corp shareholder, and dropping S shares into the trust can terminate the S election. If your business is an S-corp, you need a different plan.

The Rules You Have to Hit

1. The annual payout must be at least 5% and no more than 50% of the initial (CRAT) or annually revalued (CRUT) trust assets.
2. The present value of the remainder going to charity must be at least 10% of the initial fair market value contributed.
3. The trust is irrevocable. Once funded, you cannot pull the asset back.
4. You need a qualified appraisal for any non-publicly-traded asset.
5. Expect ongoing trustee, tax filing (Form 5227), and administration costs every year.

The Trap That Kills This Strategy

You must contribute the asset to the CRT before a binding sale agreement or any legally enforceable commitment to sell exists. If the deal is already papered, the IRS invokes the anticipatory assignment of income doctrine and taxes you personally on the gain as if the trust were never there. This is the single most common way the plan fails. Start the trust while the sale is still a conversation, not a signed LOI with financing contingencies removed.

One More Thing: Your Heirs

Whatever is in the trust at your death goes to charity, not to your kids. Families that care about that pair the CRT with an irrevocable life insurance trust (an ILIT), funded from the annual CRT payments, to replace the wealth for heirs outside the taxable estate.

Handle this with professionals. You need an experienced estate attorney and a CPA who has built CRTs before, ideally engaged months before you sign anything with a buyer.

Contact [email protected] for any questions or corrections.