Houston Estate Planning and Elder Law Attorney Blog
A block of stock purchased decades ago and never sold carries a cost basis that bears no relation to what the shares are worth today. Retirees across Dallas County hold positions like this in a former employer’s shares or in an energy company bought when the certificate still arrived by mail. Selling to diversify or to generate retirement income realizes the entire appreciation at once, and Texas having no state income tax leaves the federal exposure untouched.
A charitable remainder trust is an irrevocable split-interest trust that pays an income stream to one or more non-charitable beneficiaries for a set period and then distributes what remains to charity. Because the trust is generally tax-exempt, appreciated stock contributed to it may be sold inside the trust without the donor recognizing gain at the moment of sale.
The full sale proceeds stay invested and generate the income stream. Charitable planning in Texas frequently begins with exactly this problem.
Why a Low-Basis Position Stays Frozen
Concentrated holdings accumulate predictably. An executive collects shares through thirty years of grants and purchase plans. A family carries a founder’s stake into a second generation.
The obstacle is identical in each case. Basis sits at a small fraction of current value, so a sale converts most of the proceeds into taxable gain, with the net investment income tax layered on top for many households. The position stays put, undiversified and often producing less income than your household needs, because unwinding it looks costlier than holding it.
That calculation changes when the goal is not purely financial. A donor who already intends to leave something to a university or hospital foundation is moving value out of the estate either way, and the question is whether it moves after death or during life.
How the Trust Handles the Sale
Charitable remainder trusts are governed by 26 U.S.C. § 664. Section 664(c)(1) exempts the trust from income tax, which is what lets appreciated stock be sold inside it without immediate gain to the donor. The donor transfers assets irrevocably, names the beneficiaries who receive payments, and names the charity that takes whatever remains when the term ends.
Three consequences follow from that structure, and together they are what make it useful for low-basis stock:
- The sale occurs inside a tax-exempt trust. The trustee may sell the shares and reinvest across a diversified portfolio without the donor recognizing gain.
- The income stream is calculated on undiminished proceeds. Payments are measured against the full value rather than against what a taxable sale would have left.
- A charitable income tax deduction is available in the funding year. The deduction reflects the present value of the remainder projected to pass to charity, computed using the Section 7520 rate the IRS publishes monthly, which stood at 5.2 percent for July 2026. Under Section 170(b)(1)(C), a gift of appreciated stock to a public charity is capped at 30 percent of the donor’s contribution base, with the excess carried forward five years. Contribution base means adjusted gross income figured without any net operating loss carryback, so it is not simply AGI.
One change matters for a 2026 gift. Section 170(b)(1)(I), added by Public Law 119-21 for tax years beginning after December 31, 2025, allows a charitable deduction only to the extent total contributions exceed 0.5 percent of the contribution base. Smaller gifts fully deductible in 2025 may now fall under that floor, which is worth modeling before a funding date is set.
None of this eliminates tax permanently. Payments to the income beneficiary are taxable when distributed, under ordering rules that push the trust’s accumulated gain out first. The advantage is deferral, diversification, and the deduction, not exemption. The IRS maintains an overview of charitable remainder trusts. McCulloch & Miller, PLLC helps families in Dallas and across Texas evaluate whether a concentrated position is a candidate before drafting begins.
Choosing Between an Annuity Trust and a Unitrust
Section 664 authorizes two forms. A charitable remainder annuity trust pays a fixed dollar amount set at creation. A charitable remainder unitrust pays a stated percentage of assets revalued each year, so the payment rises and falls with the portfolio.
Both forms answer to the same statutory limits. The payout rate must fall between 5 and 50 percent, measured against initial fair market value for an annuity trust and against the annually revalued assets for a unitrust. The present value of the charitable remainder, computed under Section 7520, must equal at least 10 percent of the property’s value, tested once at creation for an annuity trust and at each contribution for a unitrust. A fixed-term trust is capped at 20 years.
Those constraints pull against each other. Raising the payout lowers the projected remainder, and a trust failing that test does not qualify at all. The federal rate moves monthly, so terms passing one month can fail the next. Families weighing alternatives should see how this sits among the broader types of trusts available in Texas.
What a Dallas Family Should Settle Before Funding
Drafting is the smaller half of the work. Whether the trust performs is decided before anything is signed.
Your shares have to be transferable with no binding commitment to sell in place. Where a sale is already under contract, the gain can be attributed back to the donor under assignment-of-income principles, defeating the arrangement. Restricted shares, S corporation stock, and closely held interests each raise separate obstacles. The charitable beneficiary also has to be named precisely enough that the remainder is not disputed decades later, when the question could land in one of the three Dallas County statutory probate courts.
Founding partner Thomas W. McCulloch is both an attorney and a CPA, which matters here because the drafting question and the tax computation are the same question. McCulloch & Miller, PLLC works through Texas trust planning for Dallas families alongside the tax analysis rather than after it.
Questions Texas Families Ask About Charitable Remainder Trusts
Can a Charitable Remainder Trust Be Changed After It Is Funded?
The trust is irrevocable, so the transfer of assets into it cannot be undone and the payout terms generally cannot be rewritten. Some documents reserve a limited power to change the charitable remainder beneficiary, letting a donor redirect the gift if the original charity dissolves. That flexibility has to be built in at drafting, because it cannot be added later.
Who Can Receive the Income Payments?
The donor commonly retains the income interest, alone or with a spouse, and payments may also run to adult children or another named individual. Naming someone other than the donor or a spouse can carry gift tax consequences at funding, so that choice belongs in the analysis before the trust is created.
What Happens if the Stock Loses Value Inside the Trust?
The answer depends on which form was chosen. An annuity trust owes the same fixed dollar amount regardless of performance, so a sustained decline erodes principal and can leave less for the charity than projected. A unitrust pays a percentage of assets revalued annually, so payments fall with the portfolio and recover with it. Households needing payment stability and households wanting inflation participation are generally pointed toward different forms.
Contact McCulloch & Miller About a Texas Charitable Remainder Trust
A concentrated low-basis position and a charitable intention often turn out to be one planning problem rather than two. McCulloch & Miller, PLLC advises families in Dallas and throughout Texas on charitable remainder trusts, with flat fees available for much of this work. To discuss whether your holding could support one, call (713) 333-8900 or contact the firm’s Houston office.