BACKGROUND John, a retired engineer, holds a large position in a technology stock that has appreciated significantly over the course of his career. While the investment builds his net worth, its low cost basis presents a challenge. Selling the shares would trigger a substantial capital gains tax.
Challenges Now in retirement, John wants to diversify his portfolio to reduce risk and generate a steady stream of income. At the same time, he plans to make a meaningful gift to his university’s scholarship fund. He seeks a way to meet both goals without losing value to taxes or complicating his estate.
Proposed Solution John should establish a Charitable Remainder Unitrust and transfer his appreciated shares into the trust before any sale takes place. Because the trust is a tax-exempt entity, it can sell the stock without generating immediate capital gains. The full proceeds can be reinvested into a diversified portfolio. In return, the trust can pay John a fixed percentage of its value each year, providing income for life. He will also receive an immediate charitable income tax deduction based on the present value of the remainder interest, which will fund future scholarships at his university.
Results and Outlook The trust creates a dependable income stream and allows for growth potential if the underlying portfolio performs well. Each payment includes a combination of ordinary income, capital gains, and tax-free return of principal, depending on investment results. By using this strategy, John avoids upfront capital gains tax, reduces portfolio concentration, and secures reliable income. Looking ahead, he sees a plan that supports both his lifestyle and his legacy. Upon his death, the remaining trust assets go to the university, creating a lasting impact for future students.