How to Use a Charitable Remainder Trust (CRT) to Sell Your Business Tax-Efficiently

How to Use a Charitable Remainder Trust (CRT) to Sell Your Business Tax-Efficiently

If you’re preparing to sell your business, taxes are likely a top concern. Capital gains taxes can significantly reduce the value of your proceeds, especially for owners who’ve built substantial equity over time.

Before selling your business, consider using a Charitable Remainder Trust (CRT). A CRT can help you reduce your tax liability, provide income for life, and support the charitable causes you care about.

What Is a Charitable Remainder Trust?

A Charitable Remainder Trust is an irrevocable trust that allows you to donate your ownership stake, receive income from the trust over time, and direct the remaining assets to charity in the future.

There are two primary types:

• CRUT (Charitable Remainder Unitrust): Pays a set percentage of the trust value annually
• CRAT (Charitable Remainder Annuity Trust): Pays a fixed dollar amount each year

By transferring ownership of your business into the CRT before the sale, the trust becomes the seller. This can allow the proceeds to bypass immediate capital gains taxes. Instead, the full sale amount can be reinvested within the trust, and you receive income based on the trust’s terms.

How It Works in Practice

Let’s say Jane, a 63-year-old dentist, plans to sell her practice for $4 million. If she sells it outright, she could bare $800,000 or more worth of capital gains.

Instead, Jane works with her financial advisor and attorney to set up a CRT before the sale. She transfers the business into the trust, which then sells the practice. The proceeds are reinvested, and Jane receives $200,000 per year for life. When the trust ends, the remainder goes to a dental scholarship fund she selected.

With this approach, Jane defers capital gains, creates a reliable income stream, and supports a cause she values.

Who Should Consider a CRT?

This strategy is often used by business owners who:

• Have a highly appreciated business they plan to sell
• Are charitably inclined but want or need ongoing income
• Want to reduce capital gains and potentially estate taxes
• Are thinking about legacy planning in addition to retirement

Timing is critical, the trust must be established before the sale is finalized!

What to Keep in Mind

A CRT is irrevocable, meaning once it’s created, it generally cannot be changed. It also introduces complexity around tax reporting, investment management, and trust administration (which is why professional guidance is essential).

Selling a business can be a major life event, and a unique planning opportunity. If you’re considering a sale or are already in the early stages, now is the time to get guidance.
Book a meeting with one of our advisors using the link below, we’re here to help you think through the big picture and make strategic decisions.