Selling a Business Using a CRT

When a business owner decides to sell or transfer ownership, the owner often thinks about achieving the following three post-transaction objectives:
1) being financially independent,
2) taking care of family members, and
3) possibly a donation to a favorite charity.
All three of these objectives can sometimes be met by setting up a Charitable Remainder Trust (CRT) – the subject of a recent article by my friend and colleague Darrell V. Arne, CPA, ASA, CM&AA covering basic CRT concepts and the mechanics involved in using a CRT in a business sale transaction.
CRT Overview
The basic concept of a CRT is that highly appreciated property (e.g. stock in a closely-held company) is donated to a Trust – naming one or more charities as the ultimate beneficiary (remainderman).
Because of the tax-exempt nature of a charitable Trust, when the CRT sells the closely-held stock, no immediate capital gains taxes are paid at the time of sale. Therefore, the trustee of the Trust has more cash proceeds to re-invest in income producing assets for the benefit of the income beneficiaries.
The former selling shareholder and spouse (Donors) become lifetime income beneficiaries of the Trust. The Donors also obtain an immediate charitable deduction (up to 30% of adjusted gross income) at the time of transfer, since the remaining Trust assets are passed to a charity upon the death of the last income beneficiary. Also, assets transferred to the charity do not subject the Donors to estate taxes.