How To Sell and Still Leave a Legacy: CRTs Explained

Even seasoned deal-makers get cold feet when the sale becomes real. The two biggest stumbling blocks are:

• Tax Drag: Decades of growth look great on a balance sheet until you calculate capital-gains taxes.
• Legacy Anxiety: Even if you’ve already set up a new venture, you may worry that a quick cash windfall conflicts with the purpose-driven culture you built.
  

CRTs exist precisely where those two pain points intersect.

CRT Fundamentals Every Owner Should Know

What Exactly Is a CRT?

A Charitable Remainder Trust is an irrevocable, tax-exempt trust that allows you to donate an asset, keep an income stream for yourself (or other non-charitable beneficiaries) during a stated term, and ultimately pass the remainder to charity. Think of it as dividing a pie: you and your family enjoy slices for a period, while the final, larger slice is reserved for a charitable organization you believe in.

Two Main Flavors

• CRT-IR (Charitable Remainder Unitrust, a.k.a. CRUT): Payout varies annually based on a fixed percentage of the trust’s market value.
• CRT-A (Charitable Remainder Annuity Trust, a.k.a. CRAT): Payout is a fixed dollar amount, set when the trust is created.
  
  

Both shield the donated asset from immediate capital-gains taxes and offer an income tax deduction equal to the present value of the future charitable gift.

How the Mechanics Unfold

1. Transfer: You place the appreciated asset—often privately held shares—into the CRT before the sale.
2. Sale Inside the Trust: The trustee sells the asset; because the CRT is tax-exempt, there’s no capital-gains hit at this stage.
3. Reinvest: Proceeds can be diversified into a portfolio that aligns with your risk tolerance and income goals.
4. Income Stream: You (and/or other named beneficiaries) receive annual distributions for a set term or for life.
5. Remainder Gift: At the end of the term, whatever is left flows to the charity you selected.
   

The Triple Win: Taxes, Income, Impact

Carving Out Immediate Tax Relief

The moment you fund the CRT, you qualify for an income-tax deduction—often worth 10–40% of the value transferred—depending on IRS rules regarding payout rate, term, and prevailing interest rates (the so-called Section 7520 rate). That deduction can offset ordinary income, smoothing the tax bump that accompanies a big sale.

Taming Capital Gains

Because the trust is tax-exempt, it sells the business without the 20–37% capital-gains haircut most owners face. More money stays invested, compounding inside the CRT, which translates to a larger pool for your income distributions and for the eventual charitable remainder.

Building a Permanent Legacy

A CRT allows you to hard-wire philanthropy into your exit strategy. If your holding company mission includes community development or industry-specific education, you can designate a charity (or multiple) that advances the same cause. Your leftover capital continues to push that mission even after you shift your focus to your next venture—or to a beach chair.

Crafting a CRT Strategy That Fits

Aligning Term, Payout, and Life Stage

• Founders in their 40s often prefer a unitrust with a 20-year term to maximize flexibility and hedge against inflation.
  
  
• Someone approaching retirement might lean toward an annuity trust that delivers a predictable monthly check.
  
  

Work backward from your lifestyle burn rate, health expectations, and philanthropic timetable.

Integrating with Other Planning Tools

A CRT is powerful on its own, but it shines brightest alongside:

• Family Limited Partnerships (FLPs) or LLCs to consolidate control of non-trust assets.
• Donor-Advised Funds (DAFs) for additional, flexible giving that can coexist with—or eventually receive—CRT remainder interests.
• Intentionally Defective Grantor Trusts (IDGTs) to shift appreciating assets to heirs with minimal estate tax.
  
  

When orchestrated correctly, these instruments form a symphony in which each part extends the reach of the others.

Funding with Private Shares vs. Public Stock

• Private Shares: Require a qualified appraisal, careful board approval, and sometimes a pre-negotiated buyout letter from the acquirer. Done right, you turn illiquid stock into a diversified portfolio without incinerating value.
• Public Stock: Simpler to value and transfer, though the relative tax savings may be smaller if the appreciation multiple is lower.
  
  

Either way, timing is everything. The asset must be inside the trust before a binding sales contract is in place, or the IRS could reclassify the transaction and erase your gains.

Common Missteps That Dilute the Benefit

• Waiting Until LOI Stage: If a letter of intent is signed, the IRS may argue the sale is effectively complete—making the CRT transfer a taxable event.
  Over-Cranking the Payout Rate: Setting it too high starves the remainder, jeopardizing the charitable deduction and risking early depletion.
• Ignoring State Taxes: Some states treat CRT distributions less favorably; coordinate with a local tax adviser to prevent surprises.
• Forgetting Successor Trustees: Life happens; naming a competent trustee back-up keeps the plan on track if you become incapacitated.
  

Bringing It All Together

At its core, a CRT lets you trade a looming tax bill and legacy anxiety for a steady income stream and a charitable footprint that bears your name long after your office chair has a new occupant. Entrepreneurs running through the acquisition cycle inside a holding company often juggle multiple variables—valuation models, integration costs, talent pipelines—yet overlook the emotional dimension of an exit. A CRT answers that unspoken question: “How can I cash out without selling out?”

Quick Recap of CRT Advantages:

• Immediate charitable deduction.
• Capital-gains deferral, sometimes outright elimination.
• Ongoing, customizable income.
• Lasting philanthropic impact aligned with your entrepreneurial values.
  
  

Selling a business is never just a spreadsheet event; it’s a life pivot. By weaving a Charitable Remainder Trust into the sale, you give yourself permission to pursue new ventures, fund the next round of innovation—or simply savor freedom—without sidelining the principles that got you here.

As always, engage qualified legal and tax advisors before you move so that the strategy dovetails with your overall estate and business succession plan. But take comfort in this: with a CRT, you really can head for the exit and still leave the lights on for the next generation.

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