How North Carolina Families Can Eliminate Capital Gains Tax with a Charitable Remainder Trust (CRT)

If you are a North Carolina family sitting on a $2 million brokerage account with a low cost basis—say, $200,000—you are likely well aware of the massive capital gains tax hit waiting for you upon liquidation. Beyond standard federal and state taxes, liquidating a highly appreciated asset can trigger surcharges like IRMAA (Income-Related Monthly Adjustment Amount) premiums on Medicare.

Fortunately, you do not have to choose between keeping your wealth or losing a substantial portion of it to taxes. A Charitable Remainder Trust (CRT) offers a tax-advantaged strategy that allows you to bypass immediate capital gains, generate a lifetime income stream, and leave a meaningful philanthropic legacy.

What Is a Charitable Remainder Trust (CRT)?

A Charitable Remainder Trust (CRT) is an irrevocable trust designed to convert highly appreciated assets into an income stream without triggering immediate capital gains tax.

Here is how the CRT process works:

1. Funding the Trust: You transfer appreciated assets—such as stocks, business equity, or real estate—into the CRT.
2. Immediate Tax Deduction: You receive a partial upfront income tax deduction based on the present value of the ultimate charitable gift.
3. Tax-Free Sale: The trustee sells the assets inside the trust at full market value. Because the trust is tax-exempt, zero capital gains tax is owed at the time of the sale.
4. Lifetime Income Stream: The proceeds are reinvested, paying you (or your named beneficiaries) an annual income for life or for a designated term of years.
5. Charitable Remainder: Once the income term ends, the remaining principal passes to the qualified charities of your choice.

CRATs vs. CRUTs: Which Structure Is Right for You?

When establishing a Charitable Remainder Trust, you must choose between two primary structures depending on your cash flow needs:

1. Charitable Remainder Annuity Trust (CRAT)

A CRAT pays a fixed dollar amount every year, regardless of whether the underlying trust investments grow or shrink. This structure provides consistent, predictable income, which can be ideal for older donors or those seeking guaranteed cash flow.

2. Charitable Remainder Unitrust (CRUT)

A CRUT pays a fixed percentage of the trust’s total value, recalculated annually. If the trust investments perform well and grow, your annual payout increases. Conversely, if the market dips, your payment decreases. CRUTs serve as a great hedge against inflation over long periods.

Ideal Candidates for a Charitable Remainder Trust

A CRT is best suited for higher-net-worth North Carolina families who have already secured their baseline liquid cash flow needs but want to optimize their tax and philanthropic planning.

Common ideal scenarios include:

• Low-Basis Appreciated Stocks: Holding large positions with significant capital gains liabilities.
• Real Estate Sales: Selling inherited or long-held real estate with a low basis relative to current market value.
• Business Owners: Transitioning out of a closely held business or executing a business sale.
• Retirement Income Boost: Supplementing retirement income while mitigating IRMAA Medicare surcharges.

When Does a CRT Not Make Sense?

While CRTs offer incredible benefits, they are not suitable for every estate:

• High Liquidity Needs: CRTs are irrevocable. You sacrifice direct access to the principal, receiving only the scheduled income distributions.
• No Charitable Intent: The primary requirement of a CRT is that at least 10% of the initial value must ultimately pass to charity under IRS rules. This is not a mechanism for passing assets tax-free to children.
• Younger Donors: Younger individuals may struggle to meet the IRS’s 10% remainder rule due to projected payout lengths over a longer lifetime expectation.

Schedule Your Coordination Call Today

Implementing a Charitable Remainder Trust requires close coordination between your estate planning attorney, tax specialist, and financial advisor. If you hold highly appreciated assets in North Carolina and want to eliminate capital gains tax while creating a lasting legacy, call our office at 919-659-8433 or directly schedule a free discovery call at your convenience: calendly.com/caryep/discovery-call-get-started-cep-blog