Brenda Vingiello, Sand Hill’s Chief Investment Officer, joined Squawk Box to discuss her thoughts on the latest market trends and market outlook for 2025. This
Tackling the Challenges of a Concentrated Position by Creating a CRUT
Published Date : April 26, 2018
Silicon Valley is home to countless entrepreneurs who have created significant wealth, all concentrated in a single stock with very low cost basis. These positions can be quite volatile and often do not generate much income, if at all. Also, by selling the shares, the individual is faced with what can be sizeable capital gains tax consequences, thus reducing the amount that can be reinvested into a more diversified portfolio.
If you are one of these individuals who also considers philanthropy a priority, establishing a charitable remainder unitrust (CRUT) and funding it with a portion of your low cost stock may be an effective tool to address these challenges. Its purpose is to convert your existing stock into a diversified income-producing vehicle for a set period of time while avoiding capital gains tax on the appreciation, and with the added bonus of providing you with a current income tax deduction for the charitable donation.
So how does it work? Create a trust and transfer the property you wish to remove from your portfolio. Name one or more charities to be the ultimate beneficiary of the donated assets. The charity must have tax-exempt status as defined by the Internal Revenue Code. You will receive a current tax deduction equal to the present value of the charity’s right to receive the trust assets in the future. If you cannot fully use the deduction in the first year, you can carry it forward for up to five additional years. The trust pays you (or someone you designate) an income stream for a certain number of years or your whole life, as specified in the trust document. Also noted in the trust document is the amount of payment you receive based on a percentage of the trust balance, revalued annually. The percentage must be at least 5%, and the higher the payout rate, the lower the income tax deduction. At your death or the end of the period, the remaining assets held in the trust pass to the designated charity.
Once the property is contributed to the trust, it can be sold free of capital gains taxes, thereby preserving the full fair market value of the assets. And if your net worth is large enough to be considered a taxable estate, once the gift is made, the property is not included in your estate for purposes of determining your estate tax.
In the year that the CRUT is established, it is an opportune time to sell additional shares of your low cost stock. Depending on your adjusted gross income for the year, some or all of the capital gain generated from the sales can be offset by the tax deduction created when donating the stock to the CRT, allowing you broader diversification.
There are other variations of charitable trusts that exist with options, such as the ability to postpone the income stream until later (“NIMCRUT” – Net Income with Makeup Charitable Remainder Trust), or to receive a fixed dollar amount each year (“CRAT” – Charitable Remainder Annuity Trust). Importantly, once you have funded the charitable trust, you give up legal control of this property irrevocably. To provide the greatest chance that you achieve your financial goals, be sure to visit with your Wealth Manager to determine the best type of trust and the appropriate amount to donate.
Articles and Commentary
Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
Video Presentations
All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
Other Posts By This Author
- – Saving Tax Dollars with Qualified Small Business Stock (QSBS)
- – Happily Ever After: Keys to Enjoying Your Retirement
- – Accessory Dwelling Units – A Quick Guide
- – The Tough Stuff: How to Talk to Your Children About Money and Finances
Related Posts
- – The Flexibility of the California Uniform Directed Trust Act
- – An Optimal Approach to Beneficiary Designations and Your Children
- – Understanding Qualified Charitable Distributions: A Guide for Donors
- – Caring for Our Feline and Canine Companions
- – Choosing Your Legacy: Deciphering Per Stirpes Vs. Per Capita in Estate Planning
Recent Posts
