Sitting on Large Capital Gains? This Trust Offers a Way Out, But Few Advisers Even Mention It
A charitable remainder trust isn't just for the charitably inclined: It can help if you're anxious to escape a concentrated stock position without a capital gains tax hit.
Fifteen years ago, Ray and Diane Kessler's investment manager recommended a chip company she was following. They bought 125 shares of Nvidia for about $1,500, mostly to be agreeable, and then forgot about it. Two stock splits later, they hold 5,000 shares worth roughly $1 million. Their cost basis is still $1,500.
Ray is 65 and Diane is 63. Both are working and earning well, but they plan to retire soon. They live in California, and they are uneasy about how much of their portfolio rides on one stock. So they asked their adviser how to diversify out of it without losing a third of the value in capital gains tax.
She told them what most advisers would. A large gain can be trimmed at the edges, harvested against losses or spread across tax years, but each leaves you still owning the gain. Only two things eliminate it: Hold the asset until you die, so your heirs inherit it with a stepped-up basis, or give the asset to charity.
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Neither one fit. Waiting decades for the step-up meant holding one undiversified position, and giving away a million dollars was not an option. So: Sell, pay the tax, reinvest the rest.
What nobody asked was how long the Kesslers were likely to live.
The IRS thinks you're average
There is a third option. You transfer the shares into an irrevocable trust, called a charitable remainder unitrust (CRUT), and the trust sells them. Because the trust is tax-exempt, no capital gains tax is due on the sale, so the whole amount stays invested and diversified at once.
The trust then pays you a set percentage of its value, recalculated each year, for life, for both lives or for a term of years. Whatever remains goes to the charity you named, and you take an income tax deduction up front for the calculated value of that future gift.
The IRS determines that gift value on the day of funding, using actuarial tables built from census data, currently Table 2010CM. Those tables describe the general population.
But the people who fund these trusts, like the Kesslers, are affluent, insured and longer-lived than average. Insurance companies know this and price annuities off a separate annuitant table.
The IRS assumes you will live as long as the average American. If you live longer than that, the trust runs longer than the deduction was calculated for, and every extra year compounds.
Why the mismatch pays
Both the deduction and your maximum payout are fixed on the day of funding. The trust runs on your actual life.
If the Kesslers sell, they realize a $998,500 gain and pay 33.1% in combined federal and California tax, leaving $669,496 to reinvest. In a CRUT, the full $1 million stays invested. At a 6% payout, that is $60,000 in the first year against $40,170 from an equal draw on the reinvested proceeds.
The trust doesn't make the tax disappear. The payments are taxable, and in year one both paths deliver similar after-tax spending money. What differs is that the tax is spread across decades while a larger base compounds.
Better than what, exactly?
A trust isn't good or bad on its own, only better or worse than what you would otherwise have done. There are three realistic alternatives:
- Sell and reinvest. Pay the tax now, rebuild in a diversified portfolio.
- Hold and leave it. Keep the stock, live on other money, pass it to the children with a stepped-up basis.
- Hold and live on it. Keep the stock and draw the same 6% from it.
In research published in the August 2026 Journal of Financial Planning, I tested a trust against all three, simulating 10,000 market futures and running the same family down both paths in each one. A "win" means the family finished that future with more spendable wealth, in today's dollars, from the trust. So a 66% win rate doesn't mean 66% more money. It means the trust came out ahead in about two thirds of the futures tested.
What longevity does to the numbers
The third alternative is the hardest for the trust to beat: It pays identical income and still passes a stepped-up estate to the children. Under IRS life expectancy, a couple aged 63 and 65 beats it with a trust 28.2% of the time.
However, give that couple seven more years and the number is 96.4%.
No other variable came close. The deduction was locked at the start on an average life. The years the trust actually ran were not.
Where this doesn't work
All of this assumes you have no charitable motive and are measuring nothing but dollars. If you do want to give, any asset at any basis will do.
For everyone else, basis moves the answer more than longevity does. The trust beats all three alternatives when basis is under roughly 11% of current value and loses to all three above 25%. Long life improves those odds without reversing them. The Kesslers sit at 0.15%.
Across 500 randomly drawn household situations, varying age, basis, payout and home state, the trust was the better choice in about a third of them. That is not a coin you have to call blind. Every one of those variables is knowable before anything is signed.
The up-front deduction is what most people ask about first, and it matters least. Tax legislation in 2026 added a 0.5%-of-AGI floor and capped top-bracket filers at 35 cents per dollar. Over a long trust, the tax on the payments takes back much of what the deduction gives.
Outcome
The Kesslers funded a two-life trust in November, with the full million still invested. Buy an annuity and the insurer prices your health. Fund a CRUT and the government prices it off a table that assumes you are average. Few advisers will raise it on their own, because it is filed under charity. Ask.
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