The Kingdom Exit
A hypothetical illustration of how a business owner could use a Charitable Remainder Trust to sell a $6M company — potentially keeping more, giving more, and paying less in taxes than a traditional sale structure.
A lifetime of building. One chance to get the exit right.
For a business owner who's spent 20+ years building a company, the sale is the single largest financial event of their life. It's also the moment where the most money is left on the table — not because of a bad deal, but because of a bad tax strategy.
Most business owners hire an M&A attorney, negotiate the best price they can, sell, and then call their CPA to find out how much they owe. By that point, it's too late. The tax planning had to happen before the sale — and for the most powerful strategies, before the letter of intent was signed.
Client profile — Tom & Linda Harrington*
Tom had built a premier commercial HVAC company from a single truck and a prayer. A private equity group offered $6 million for the business — a life-changing number. But when Tom called his CPA to ask "what do I keep?", the answer was sobering.
The straight sale tax bill
With a cost basis near $200K and a sale price of $6M, Tom was looking at approximately $5.8 million in taxable gain. The combined federal and state tax bill would consume a massive portion of the proceeds.
| Long-term capital gains (20%) | $1,160,000 |
| Net Investment Income Tax (3.8%) | $220,400 |
| Indiana state tax (~3.05%) | $176,900 |
| Estimated Total Tax | ~$1,557,000 |
Tom would keep roughly $4.4M of a $6M sale. Over $1.5 million — more than 25% of his life's work — would go directly to taxes. And that's before considering the ongoing tax drag on investing the proceeds.
Three paths. One clear winner.
We presented Tom and Linda with three options — each optimized for a different priority. The right choice depended on what mattered most to them.
Sell. Pay ~$1.56M in taxes. Invest the rest. Simple but expensive. Zero charitable benefit. Ongoing tax drag on investments.
Donate $500K in stock pre-sale to a DAF. Avoid gains on donated portion. Get charitable deduction. Good — but leaves significant tax on the table.
Transfer portion to a CRT pre-sale. Defer capital gains. Create lifetime income. Charitable deduction. Ministry receives remainder. Maximizes every dollar.
How a Charitable Remainder Trust works
A Charitable Remainder Trust (CRT) is an irrevocable trust that allows you to transfer appreciated assets, receive an income stream for life (or a term of years), and direct the remaining balance to charity at the end of the trust term. It's one of the most powerful tools in tax and estate planning — and it's perfectly designed for a business exit.
Business interest transferred to the trust
Before the sale closes, $3M in appreciated business interest is transferred to the CRT.
CRT sells — no tax
The trust sells its interest for $3M. Because the CRT is a tax-exempt trust, there is zero capital gains tax at the time of sale. The full amount is reinvested.
Income for life
A 7% annual payout equals $210K per year to Tom & Linda for their lifetimes.
Layering the CRT with pre-sale planning
Establish the CRT before the sale closes
We established a Charitable Remainder Unitrust (CRUT) and transferred $3 million of Tom's business interest into the trust before the acquisition closed. This is the critical step — the transfer must happen before the sale is a "completed transaction" or the IRS will disallow the tax benefits. The CRT was structured with a 7% annual payout for both Tom and Linda's lifetimes, with the remainder directed to their church's building fund and a missions organization.
CRT sells its interest — tax-deferred
When the PE group acquired the company, the CRT sold its $3M interest as part of the deal. Because the CRT is tax-exempt, there was no capital gains tax on the $3M at sale. Compare this to Tom keeping that $3M himself: he would have netted roughly $2.2M after taxes. The CRT preserved an additional $800K+ in capital.
Immediate charitable deduction
The CRT generated an immediate partial charitable deduction of approximately $780,000 — representing the present value of the remainder interest that will eventually go to charity. The deduction is limited to 30% of AGI for appreciated assets, with a 5-year carryforward.
Sell the remaining $3M directly
Tom sold the other half of his business interest ($3M) directly. This generated capital gains tax — but the charitable deduction from the CRT significantly reduced his overall tax bill. Combined with strategic use of installment sale provisions, the effective tax rate on the full $6M transaction dropped dramatically.
Lifetime income + wealth replacement
The CRT now pays Tom and Linda $210,000 per year (7% of trust value, recalculated annually). To replace the wealth that will eventually go to charity, we established an Irrevocable Life Insurance Trust (ILIT) with a second-to-die policy, funded by a portion of the CRT income. This ensures their children receive a tax-free inheritance equal to or greater than the CRT remainder.
More income. More giving. Less tax.
Estimated net after ~$1.56M in taxes. No income stream. No charitable benefit. Full estate tax exposure.
Estimated total value: retained proceeds + lifetime income + tax reduction + charitable deduction + wealth replacement.
| Component | Estimated Value* |
|---|---|
| Direct sale proceeds (after tax, net of CRT deduction benefit) | $2,600,000+ |
| CRT lifetime income (est. present value, ~$210K/yr) | $3,200,000+ |
| Charitable deduction tax savings | $250,000+ |
| Capital gains tax avoided (CRT portion) | $800,000+ |
| ILIT death benefit (wealth replacement) | $3,000,000 |
| Projected remainder to church & missions | $2,400,000+ |
| Estimated Tax Reduction vs. Straight Sale | $1,100,000+ |
The Kingdom multiplier
In this hypothetical scenario, Tom and Linda didn't have to choose between their family and their faith. The CRT strategy was designed to allow them to potentially keep more, give more, AND pay less — simultaneously. Their church building fund could receive over $2.4 million. Their children may inherit $3 million tax-free through the ILIT. They could receive approximately $210,000 per year in retirement income. And the estimated tax reduction compared to a straight sale exceeds $1.1 million. That's not tax avoidance. That's stewardship. Actual results depend on trust performance, tax law, and individual circumstances.
What makes this work (and what to watch)
- Timing is everything. The CRT must be established and funded before the sale is a completed transaction. Once a binding agreement is in place with no contingencies, it may be too late. Pre-sale planning — ideally 6–12 months before the exit — is critical.
- The CRT is irrevocable. Once assets are transferred, they cannot be retrieved. This is a permanent commitment — which is why it's essential to work with clients who have genuine charitable intent, not just tax motivation.
- Income is taxable (but efficiently). CRT distributions carry a "worst in, first out" tax character: ordinary income first, then capital gains, then tax-exempt income, then return of corpus.
- Wealth replacement makes the family whole. The ILIT is a critical companion strategy. The life insurance policy — funded by a small portion of the CRT income — ensures the next generation receives an inheritance that's actually larger and more tax-efficient.
- Legal counsel is non-negotiable. CRTs require drafting by an experienced estate planning attorney, actuarial calculations for the charitable deduction, and ongoing compliance. This is not a DIY strategy.
The ideal candidate
- You're selling (or planning to sell) a business for $3M+ and want to minimize capital gains tax on highly appreciated assets.
- You're already giving generously — or want to — and would love a structure that amplifies your giving while creating personal income.
- You want lifetime income from the sale rather than (or in addition to) a lump sum.
- You care about legacy — both the financial inheritance for your family and the charitable impact for your church and community.
- You're willing to plan ahead. The CRT must be in place before the sale closes.
Important Disclosures
"Tom & Linda Harrington" is a hypothetical illustration used for educational purposes only. This case study does not represent any actual client or guarantee of results. All figures are projections based on assumed rates of return, tax rates, actuarial calculations, and trust performance — actual results will vary significantly based on individual circumstances.
Charitable Remainder Trusts are irrevocable and involve complex legal, tax, and investment considerations. CRT income distributions are subject to a tiered tax structure. The charitable deduction is based on actuarial calculations and is subject to AGI limitations. Life insurance policies used for wealth replacement involve underwriting, ongoing premium payments, and are subject to the claims-paying ability of the issuing company. This material is not investment advice, tax advice, legal advice, or a solicitation to buy or sell any security or insurance product. Tax laws are subject to change. Remnant Wealth LLC is a registered investment advisory firm. Registration does not imply any level of skill or training. Remnant Wealth LLC does not provide legal or tax advice.