A charitable remainder trust defers taxes upon the redemption of stock, assists in the gradual phase-out of stockholders, and allows for gifts to charity.

In the sixth chapter of Visual Planned Giving: An Introduction to the Law & Taxation of Charitable Gift Planning, author Russell James focuses on the rules limiting charitable income tax deductions.

Gift planners must be able to explain the consequences of charitable income tax deductions to their donors/clients. First, they must understand the dollar value of the deduction generated by the transfer; and second, they must understand how much of the deduction can be used in the current year, or the five succeeding years. Charitable deductions cannot eliminate 100% of an individual's taxable income (because they are deductions, not credits). The total amount of income that a charitable deduction can eliminate may be 20%, 30%, or 50% in a taxable year. These limitations are important, because most persons making significant charitable gifts do not do so out of income. Many persons, holding valuable assets, especially those in or nearing retirement, do not have significant incomes, and may not be able to use the charitable deduction in the immediate tax year. Some may not have enough income to use the carryforwards over the next five years, so the value of the deduction diminishes.

The Code prioritizes gifts based on what type of asset is gifted (cash vs. appreciated assets), and the identity of the charity (public charity vs. private foundation). Cash given to a public charity can be deducted against 50% of adjusted gross income ("AGI"), while gifts of long-term capital gain property can offset up to 30% of AGI. On the other hand, the same gifts to a private foundation can offset 30% and 20% of AGI, respectively (but only if the asset is qualified appreciated stock). Cash, creations by a donor, business inventory, and short-term capital gain property are all deductible at 50% of AGI. The deduction available for these items is limited to the lower of their cost basis or fair market value.

Long-term gain property does not receive the same favorable tax treatment as cash, because the donor gets a double avoidance of tax. The donor pays no capital gains tax when transferring the asset to charity, and receives a deduction for the full fair market value. If the income limitations prevent the donor from utilizing the full deduction in the first year, it can offset income for the next five years. If the donor has made gifts from more than one class of assets, the favored gifts (i.e., cash to a public charity) are deducted first, then less favored gifts (i.e., appreciated securities to private foundation). Gifts made during the year are counted before carryforward gifts.

Mr. James has created a set of 65 videos for his "Complete Charitable Planning Training Series," to help his readers understand Chapter 6 and the entire book.

Last week was a whirlwind on Capitol Hill. From the Senate floor to the Resolute Desk, the One Big Beautiful Bill (Bill) was enacted into law on July 4, 2025. The legislation includes significant changes to trust and estate taxation, charitable deduction rules, and contribution limits for both individual and corporate taxpayers.

Donor places company stock from a qualified profit sharing plan into a CRT to defer gain, obtain a tax deduction, receive a lifetime cash flow, and create a charitable legacy.