The reason you haven’t diversified out of that position isn’t that nobody told you to. It’s the tax bill waiting on the other side of the sale. A holding with a $300,000 basis and a $4 million value doesn’t get sold casually, and “you should diversify” is advice that ignores the only part that’s hard.
A charitable remainder trust is one way through, and it’s worth understanding before you need it. You move the shares into an irrevocable trust. The trust sells them and pays no capital gains tax, because the trust is tax-exempt. The full pre-tax amount gets reinvested and pays you a stream for life or for a term of up to twenty years. Whatever remains at the end goes to charity, and you take a deduction up front for the present value of what charity is projected to receive — usable against up to 30% of your adjusted gross income in the first year, with five years to carry forward the rest.
Under Section 664 the payout has to fall between 5% and 50%, and the charitable remainder has to be worth at least 10% at the moment of funding. Beyond that there are two versions, and the difference matters more than most explanations admit. The annuity version pays a fixed dollar amount set at the start. The unitrust version pays a percentage of trust value, revalued every year, so your income moves with the portfolio and you can add to the trust later.
You may have heard that rising rates make these trusts more attractive. That’s true of the annuity version, where the Section 7520 rate — 5.4% for September — drives the deduction, and where the near-1% rates of 2021 often left the structure unable to pass its own viability test. It’s largely not true of the unitrust, which is fairly rate-neutral; there the deduction is driven by the payout rate and the term. For a concentrated stock position the unitrust is usually the better fit, which means the rate environment probably matters less to your deduction than you’ve been told.
Now the trap, and it’s the reason this is a conversation to have early. If you’re already bound to sell when the shares go into the trust, the IRS treats the gain as yours under the assignment of income doctrine. You get the trust and the tax bill. Revenue Ruling 78-197 draws the line at whether the trust itself can be compelled to complete the sale — but the Ninth Circuit went further in Ferguson, a case about stock given away after a tender offer had already drawn enough shares to make the outcome a practical certainty. A pending deal is a bad place to start this.
Here’s what we’d tell any client: this is not tax avoidance. It defers and restructures the tax, and it costs you access to the principal permanently. Distributions come back under a four-tier system that pays out your most heavily taxed income first, so the early years are the expensive ones, and those distributions carry the 3.8% net investment income tax with them. The trust is irrevocable. If you have no charitable intent at all, this is the wrong tool — an exchange fund probably serves you better, or a disposition structured across several tax years. Exchange funds carry their own costs — they generally require qualified purchaser status and lock the money up for years. And if the shares are in a closely held company rather than a public one, there are additional traps around S corporation stock and operating partnerships that deserve their own conversation.
Where it fits is narrow and real: a concentrated, low-basis public position held by someone who wants income, wants out of the concentration without paying for the exit, and was going to give to charity anyway.
The objection we hear next is always the same one — your children don’t get that money. That objection has an answer, and we’ll take it up in a follow-up piece. If a sale is anywhere on your two-year horizon, though, that’s a conversation to have now rather than after something is signed.
For informational and educational purposes only. Not investment, tax, or legal advice. Lake Hills Wealth Management does not provide tax or legal advice and nothing herein is a recommendation with respect to any specific transaction or any security. Charitable remainder trusts are irrevocable and involve the permanent transfer of assets; they are not suitable for every investor. The payout rates, remainder requirements, and Section 7520 rate referenced are those in effect as of September 2026 and change periodically. Your deduction, your income stream, and the tax character of your distributions depend on the type of trust, the payout rate elected, the term, the assets contributed, and your individual circumstances. The timing of any transfer relative to a pending sale is fact-specific and consequential. Any charitable trust should be drafted by qualified counsel and confirmed in advance with your certified public accountant and attorney, who are responsible for the tax and legal treatment of the transaction. Additional information about Lake Hills Wealth Management, including our Form ADV Part 2A and Form CRS, is available at lakehillswm.com. Lake Hills Wealth Management is an SEC-registered investment advisor. Registration with the SEC does not imply a certain level of skill or training.