Bloomberg Tax: Tax Management Estates, Gifts and Trusts Journal – Using Charitable Remainder Trusts to Defer Reporting the Gain Realized From the Sale of Marketable Securities for Cash

For appreciated marketable securities owners who do not want to wait until the income tax-free step-up in basis at death or cannot take advantage of it at death because the appreciated stock is owned by an irrevocable grantor trust1 that is not exposed to the estate tax, a limited approach obtaining liquidity is touse a margin loan. That may not be satisfactory, as the built-in gain still exists when pledging an appreciated asset as collateral for a loan. However, one can use a charitable remainder trust (CRT) to defer the reporting of the realized gain if one desires to sell the marketable securities while living.

The first part of this article provides a brief overview of how CRTs are treated for federal income tax purposes. The second part will demonstrate how the CRT can obtain income tax deferral of a taxable gain on a cash sale of an asset, with a caution about its limitations and its risks.

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