Can a Florida Trust Give Bill Income, a Deduction, and a Gift to His University?

Bill's Problem: One Stock, Three Goals

Bill is 70, lives in St. Augustine, and holds about $800,000 in a single stock he bought decades ago for a fraction of what it is worth today. (Bill is a composite drawn from situations I see often in practice, not an actual client.) He wants three things that seem to pull in different directions: an income stream to supplement retirement, a meaningful tax deduction this year, and a lasting gift to the university where he met his late wife. Sell the stock outright and a large capital gains tax bill arrives immediately, shrinking everything that is left to work with.

An irrevocable trust is one Bill could not simply revoke or amend on his own once it is signed, and that loss of control is exactly what lets the assets inside it be treated differently for tax purposes. A charitable remainder trust (CRT) is a specific type of irrevocable trust built for precisely Bill's situation: it holds appreciated property, sells it tax-exempt, pays the donor income, and sends whatever is left to charity when the trust ends.

How the Tax-Exempt Sale Actually Works

Here is the mechanism. Bill transfers his low-basis stock into the CRT. Because the trust itself is a tax-exempt entity, when the trustee sells that stock inside the trust, there is no immediate capital gains tax on the sale. The full $800,000 (minus transaction costs) stays invested and working, rather than being reduced by a tax bill before it ever generates income.

That does not mean the gain disappears forever. As the trust makes payments to Bill over the years, those payments carry out pieces of the trust's income and gain under IRS ordering rules, so Bill reports income as he receives it rather than in one lump sum in the year of sale. Spreading the tax impact over time, instead of absorbing it all at once, is often the single biggest reason a retiree in Bill's position considers this structure.

CRAT or CRUT: Choosing the Income Stream

Bill's income comes as either a fixed annuity or a variable unitrust amount, and the choice shapes the trust's name and behavior.

• Charitable Remainder Annuity Trust (CRAT): pays Bill a fixed dollar amount each year, set as a percentage of the trust's value on the day he funded it. That payment does not change even if the trust's investments do well or poorly, and Bill cannot add more assets to it later.
• Charitable Remainder Unitrust (CRUT): pays Bill a fixed percentage of the trust's value, recalculated every year. If the investments grow, his payment grows with them; if they decline, so does his payment. A CRUT also allows additional contributions after the trust is first funded.

Federal tax rules require the payout rate to fall within a defined range, and the trust must be structured so that a meaningful share of the original gift, on an actuarial basis, is projected to ultimately reach the charity. For a retiree like Bill who wants predictable income and is done adding to the trust, a CRAT often feels simpler. For someone who wants payments to potentially grow with the market and may want to contribute more later, a CRUT is usually the better fit. This is a genuinely individual decision that should be run through the numbers with an attorney and tax advisor before the trust is drafted.

The Charitable Deduction and the Remainder to the University

When Bill funds the CRT, he is entitled to an immediate income tax deduction in the year of the gift, even though the university will not actually receive anything until the trust ends. The deduction is not simply equal to the value of the stock; it is calculated as the present value of what the charity is expected to eventually receive, factoring in Bill's age, the payout rate chosen, the trust's term, and an IRS interest rate assumption used for these calculations. In plain terms: a lower payout rate or a shorter term generally produces a larger current deduction, because more is projected to flow to charity in the end.

When the trust term ends, whatever principal remains passes to Bill's university outright, free of any further trust restrictions. For Bill, that means his gift is locked in and irrevocable from the moment he signs, which is part of what makes the immediate deduction available in the first place.

What About Bill's Children? The Wealth Replacement Idea

A CRT is a wonderful tool for Bill and his university, but it is a poor tool for leaving money to children, because everything left in the trust at the end goes to charity, not to heirs. Many Florida retirees who use a CRT address this with what is often called a wealth replacement approach: they use part of the income stream from the CRT to pay premiums on a life insurance policy, with the death benefit designed to replace, for the children, roughly the value the family gave up to charity.

That life insurance is typically owned by an irrevocable life insurance trust so the proceeds pass to heirs outside of Bill's taxable estate and outside probate. It is a separate irrevocable trust working alongside the CRT, not a feature built into the CRT itself. Whether this approach makes sense for Bill's family depends on his health, insurability, and how much of his CRT income he is comfortable redirecting toward premiums, all questions that deserve careful review with an attorney and a knowledgeable insurance professional.

Trustee Duties and Ongoing Administration

A charitable remainder trust is not a signed-and-forgotten document. Florida trusts, including CRTs administered in Florida, are governed generally by Florida's Trust Code (Chapter 736), and the trustee (who might be Bill himself for certain administrative functions, a corporate trustee, or a combination) has ongoing duties: filing the trust's annual federal information return, calculating and issuing Bill's annual payment correctly, investing prudently for both Bill's income needs and the charity's eventual remainder, and keeping records that will withstand IRS scrutiny for decades.

Choosing a trustee comfortable with these ongoing obligations, corporate or individual, is one of the most practical decisions Bill will make when the trust is created.

This article is for general informational purposes only and does not constitute legal advice, nor does reading it create an attorney-client relationship. Florida estate, elder, probate, and real estate law are fact-specific and change over time. Consult a licensed Florida attorney about your individual circumstances. Arthur Simpson, Esq. is licensed to practice law in the State of Florida. Attorney advertising.