Sitting on Highly Appreciated Stock? How a Charitable Remainder Trust Can Work for Your Family

Jenni: Yes. Now we know you don't wanna be an asshole and not care about giving but the point is like you can actually satisfy two things with one stone. You can leave money at the end of your lifetime for charity while still maximizing income to you and your family. And that's the beauty of this tool.

Welcome to the Modern Family Finance Podcast, where we talk about all things, money, career, and life. I'm Jenni, your host and founder of Modern Family Finance, a fee only financial planning firm in the San Francisco area with the mission of providing tax smart financial advice for modern families, delivered like a trusted friend.

I am thrilled to be joined today by Dr. Roger Silk, who is the founder and CEO of Sterling Foundation Management, one of the pioneers in the world of charitable remainder trust and charitable giving in general. Roger and I have had the pleasure of collaborating together for a couple of clients where Sterling manages the charitable trust.

We advise in the financial strategy, and together we can help clients achieve a setup that is not only tax smart, but purpose driven, where they can share in the winds of growth and meaningful giving. So if you've got a highly appreciated asset, maybe that's stock,  or crypto, a business interest or real estate, and you're wondering how to be thoughtful about next steps, this episode is for you.

So Roger, thank you so much for taking the time to talk with us. Yeah, why don't we just start with sharing about what Sterling Foundation does.

Roger: Sure Jenniy, thanks for having me on. I appreciate it. So Sterling Foundation Management, we started, my partner and I started Sterling in 1998. So that was a while ago. And for, I bet a lot of your listeners will remember that was the height of the, almost the height of the.com boom. And so my partner, Jim and I were like everybody else a lot younger then, and a lot of our friends and colleagues and people we went to school with were making.

What seemed in those days, like huge amounts of money, they're still big, but the numbers have gotten so much bigger now. And both Jim and I had experience in the private foundation world and the private client world. So some of these people approached us and we said, Hey, maybe there is a business opportunity here.

So we started Sterling Foundation Management in 1998, originally doing just. Private foundations you may recall or learn from history that that dotcom boom didn't last. And in 2000 the train went off the cliff and our new business went down by 90%. And we actually lost some of our old business because people.

Lost their money. Didn't have, they had the whole thing in one of those darling stocks and they didn't sell it and went away. We survived that and then we survived 2008. And so we now cover essentially the whole gamut of everything that is the intersection of. High net worth and philanthropy.

So we do everything in the area. So we do private foundations, we have a donor-advised fund. We do public charities, we do supporting organizations. We do Charitable remainder Vendor Trusts, we do Charitable, lead Trust, and almost anything else you can think of. The two things that we do not do. We do not manage money, and we don't help you raise money for your charity and.

The reason we don't do those two things is we don't know how to do 'em but everything else we're pretty darn good at.

Jenni: Okay, awesome. Thanks. Didn't know. And you've been doing this now for a long time. I'm curious, like what, how did you even get into the private foundation world? How did you end up in this place?

Roger: So I got into private found. My first exposure to private foundations was back in the early nineties. And I had been hired by a then newly wealthy family to set up their family office for them, which I did. And one of the things we did a fair amount of philanthropic planning. So for them, we did a, as I recall, we did a private foundation and we also did I think it was a supporting organization.

Which is a specialized type of public charity, but it's like a cross between a public and a non-public. And so that was how I first got into it. And my partner Jim, was involved with another different high net worth family and was involved in their foundation. So it was a natural.

Jenni: Gotcha. Great. Okay. So for, when people think about private foundations and charitable giving and the things you're talking about, they tend to think this is only applicable for folks with hundreds of millions, billions of dollars. Not for, people with Yes, with some wealth but not that level of wealth.

Tell me if we're talking to an audience of, tech professionals or whatnot, in the Bay Area. We're not talking hundreds of millions dollars, but like for whom is this applicable for, what level of wealth do these kind of tools start to apply and what kind of person does this apply for?

Roger: so that's a great question, Jenniy. So there, there are a bunch of different tools and different tools might have different fits for different people. So private foundations. For people who have a lot of money, not even by Silicon Valley standards. We generally recommend, you can do a private foundation for under a million dollars.

We generally recommend for a private foundation, $5 million and up. If you're very philanthropically oriented and you have less than that, you can probably achieve. Your philanthropic goals more efficiently? Probably using a donor-advised fund may be a different tool. And we do work in all those areas.

If you what we do a lot of work with are people who philanthropy might not be really on their radar screen all that much, but they're interested in. Are there ways I can take advantage of I, I hear there's tax benefits for charitable organizations. Is there a way I can take advantage of those tax benefits even if I'm not that charitably oriented?

And the answer to that is yes. We've developed a number of approaches to that for people who. Really aren't driven that much by charity. So in our experience, in the high net worth world, and it depends a lot on a lot of factors, how much, how concentrated, what age do you have kids? Do you ever plan to have kids?

Are you married? You ever plan to be, there's a thousand factors just like there is in financial planning. They have to be taken into account. Before you can say to somebody, oh, you ought to do this, you ought to do that. Or you ought to think about doing this. So if you have somebody who has, in Silicon Valley, you have a lot of people with a lot of publicly traded stock, but they have really low basis.

And if they're in Silicon Valley, they're most likely California taxpayers, which means that. They often face a marginal tax rate of 37% on capital gains, and that can be pretty painful. If somebody says I've got 10 million or whatever the number is, and I really don't, I really don't. I'm not the happy ending up with six and change of that after I sell.

So as that's the kind of thing where we have some trust approaches that can be tailored to a person's. Particular individual situation or family situation so that they can liquidate that stock or crypto or real estate or business holding and not have a current tax on it. So the example that I, I like to use an example because we have a number of them of $10 million of essentially zero basis.

And you and I have a joint client, which is almost exactly those facts. You take the asset, you set up a trust, or it could be multiple trusts. It depends on the family situation. You put the asset before there's any, before there's any obligation to sell. That's really key. So if it's public stock or if it's crypto, if it's something that you just sell on an exchange and there's no deal until there's a deal.

That's pretty straightforward. If it's a business or real estate. There's usually negotiation involved. The earlier in that process, you can address the tax planning, the better for two reasons. One, obviously the more complicated the asset that you're selling, the more involved that often is for the for the owner, for the client.

And the other is it gets you out in front of this. A potential of what they call assignment of income. You wanna avoid what they call assignment of income. And so if you do your planning out in front you re before there, before you start negotiating a deal that takes that issue off the table.

Jenni: Got it. Yeah, so I think what you're starting to explain with this the use case, I think that's a good use case, right? Take somebody who has say five to 10 million bucks of appreciated stock with very low basis, maybe because they were a pre IPO employee and now this company is worth a lot of money and they're holding onto it, but they know that they're sitting on the.

Ton of capital gains. At the same time, they're also afraid of holding onto all of this. 'cause all of their money is stuck in one thing, right? So they're like, what can I do? What about the taxes? So this is where like a charitable remainder trust can be really powerful. Can you explain how a charitable remainder trust works and how this solves this can help solve this address, this challenge?

Roger: Yeah, so you use the term charit remainder trust and certainly you can use the char remainder trust in a circumstance like this. The traditional charit remainder trust might not be a great fit for a lot of people. Depends on their age, on their circumstances, on their desires. The traditional chair remainder trust has been basically developed by charities, really for charities.

And so they give it to their donors or they offer it to their donors, really with the intention of raising material amount of material, amounts of money in relatively short periods of time. So we have taken this concept and said, what about the. Client, the owner, the grantor, whatever you wanna call that person, where charity is not a major concern.

So under most circumstances, we can arrange it so that the charitable part of that, it, it has to still meet a, a minimum standard that's objectively defined by IRS rules. But within that you can structure things so that charity is a bigger part or charity is a smaller part. And what, in a lot of cases, lemme back up for a second.

The way that a charitable remainder trust or anything like that works or almost anything like that works is the tax benefits to the. Grantor to the stock owner are mainly deferral benefits. It's not like you completely avoid the tax unless you actually wanna give the whole thing to charity. And if you do the be to do that usually is to just give it to charity.

A small fraction of people wanna do that. So these trusts, these exempt trusts work by deferral and obviously the longer you can defer, the more valuable they are. So we try to set them up so that they have the longest actuarial life that they can, and depending on the exact facts, that usually ends up somewhere in the neighborhood of 50 to 60 years and we can often engineer it to get the longest that we can, that will still qualify.

You might think of it, someone might talk about it as a charitableirman, remainder trust, but you don't have to think of it that way. And so if you're listening to this and you say I'm not really that interested in charity, I'm not interested, that might not be the really the right answer for you because it's possible.

And I know we've done this for, in many cases. If you take, you can think about it like this, okay? You can say, okay, I'm only really interested in tax benefits. I don't care about charity. So you can say, yeah, money's gonna go to charity sometime in the future, but I value that at zero. Okay? So you still have a financial prop calculation there.

You can say, okay, if I use this trust. I take such and such income for such and such number of years, and the underlying assets return, whatever they return, and my tax rates are this. So you can, it's pretty easy to compare. What if I sell now, pay the tax. Now I have it completely. I never, nothing's ever going to charity and I can reinvest it however I want.

You can, and you can figure out how much total cash is gonna be available to you and maybe your family that way. And you can compare that to everything else the same except you put it in trust first, you sell it. And so I'll give you an example just so you can follow some numbers. If you have $10 million, and this is for convenience, say zero basis.

If you put $10 million in zero basis into a tax exempt trust and you sell it, you're gonna have $10 million. You then invest that and you can generate some number of income, say 5%, which is fairly typical. And then you get that out. When you get that, you pay tax on it. So that's a stream of income that's gonna last for some actuarially expected period of time, say 50 years.

You can figure out what that's worth. You can then compare that to everything's the same except I paid tax upfront. So instead of 10 million I had. 6.3 or whatever the number's gonna be in California or wherever you are, you invested that same assumption, same everything. And how do those total available net after tax dollars compare?

And we do that a lot and obviously there's a few variables, but generally the trust approach, it's gonna give you something like two to one. And a couple of clients that we've worked on together, Jenny, I think they've been in that area when we've done the analysis. Is that about

Jenni: I think so. Yeah. Depends on how long they live, but yes.

Roger: yeah.

And in, in many cases so that if the people are really young, and it's a really great point that it does depend on how they long they live depending on the family situation. Like a typical situation is gonna be a couple and. Probably some kids. And so you have less actuarial risk. Obviously, if you have two people, you have less actuarial risk than with one.

But in either case, if you're, if people are worried about it, that's what life insurance is for. And it tends to be, the risk tends, the actuarial risk tends to be the biggest with young people, which is paradoxical because they're the cheapest to ensure It's just the way these things work. And when you're old, you tend to.

You have less actuarial risk in the sense that you're not gonna live as long. And you're and you probably have kids or air heirs if you care about that. Yeah, you can't, we're all, we're talking about the future. So the future by definition is unknown. We don't know how long anyone's gonna live.

We don't know what investment returns we're gonna be. We might not know exactly what tax rates are gonna be, but you have to make assumptions, any planning that you do, and it's pretty typical and we're not using outrageous rates of return. I think when we did it for your clients, we would, we use 7%.

Jenny.

Jenni: Yeah. I can't remember exactly, but yes, it's probably, it was something reason I put, if I gave you a number, I would've said six and a half. So somewhere around there.

Roger: Usually it's somewhere between six and a half and eight. What? You can do it however you want. It's, and that brings up an interesting point was, which is because these things work by deferral, there is a point at which they're not a good idea, purely from a financial point of view, which is if returns are too low because you're deferring tax on returns, in addition to the upfront tax.

But if your returns are really bad or negative, it's not gonna be a good plan. But of course, if you expected long-term negative returns, you'd probably be doing something completely different anyway.

Jenni: Yeah.

So let me just like back up and try to summarize and make sure we are understanding we're clear. So I think what you're saying is actually, a charitable remainder trust by definition sounds like it is for folks whose primary motivation is. Charitable giving, and that was the original genesis of this pro, of this structure.

But over time, it also actually solves a se a second issue, which might be actually more important for many folks, is how do you manage the capital gains from a highly appreciated asset? And how do you maximize the financial return to you and your. And so with that, you can, Sterling can structure this trust and write it in such a way that the goal is to maximize, basically the income to you while still also achieving some charitable goal at the end of it.

But the primary goal is like, how do we actually maximize income to the family? Is that a fair point?

Roger: Yes, and I think that fits the two that we've done together. We also do it's not uncommon. And for reasons that we don't have to go into, it didn't apply for these two clients that we're working on. They were constrained by other types of constraints that are pretty rare. But for most people, especially if they're high net worth, they don't necessarily, if you put $10 million in, you're taking 5%, even that's $500,000.

And there are a lot of people. Who don't want $500,000 more of taxable income if they have a choice. And so what we often do, what we typically do is we structure these trusts in such a way that they don't have to take that 500,000 or whatever the number is every year and every year they don't take it.

It grows inside the trust tax deferred more, and it can be taken in the future either by them or by heirs.

Jenni: Yeah. Okay. So let me just paraphrase again. Again, the benefit of the reason why you can increase the income, why this is financially benefit. Official for the grantor is because, like you said, it's the deferral on the tax. Instead of having that 37 ish percent disappear to taxes from the get go, what you're doing is you're only paying tax as the money slowly comes outta the trust to you, right?

And so that deferral allows that money to grow inside the trust, and that's how you can end up with actually potentially more income than had you just sold it, taken the tax bite, and then reinvested it. So that's like the main point of the charitable media trust. The second point that Roger's pointing out is that can you con what about the money that's coming outta the trust?

What if I don't really wanna pay tax? What if it's, this is a bad year for me to take taxable income? Or Roger saying, here's that actually, there's also ways to structure the trust that there's flexibility about how the income comes out, so that you can control that and manage that.

Roger: That's right. And the corollary that is that typical high net worth person doesn't need more income. What they want is. An ability to invest tax deferred so that the asset base can grow. Obviously, if you're not, if you're not paying current tax, you can grow, right? It's obvious, right? If you're earning seven and keeping seven, at least for the time being, that's gonna grow faster than if you're earning five, earning seven, and keeping five because you gotta pay current taxes.

And so a lot of people use these. As deferral vehicles and we don't do the investments but the advisors use it as a deferral vehicle that's gonna keep growing and the client's interest in it is growing as well. Just because they're not taking the income doesn't mean that they're not, the value isn't accruing to them.

It generally is still accruing to them.

Jenni: Yes. Okay. Tell me more about the income. How much income can they take out of it? And let's just take the use case of someone who's a couple who's in their forties. They have two kids and they put in, let's just say they put in $5 million into a charitabletrail board remainder trust, and they're trying to maximize income to their family.

What, how much income can they get out from a percentage basis

Roger: So the legal. Range is a minimum of 5% and a maximum of 50%. But it's pretty obvious that unless you have Warren Buffet squared as your investment guy, you're not going to earn 50% a year. A 50% I've never seen one, the highest I've ever seen. Is 20 or 25, and you have to basically, if you're gonna do such a really high payout trust, you almost have to think of it as like an installment sale, because effectively it's gonna decline in value, right?

If you're paying 20%, unless you're really earning spectacular returns, which pretty much nobody does consistently. It's gonna decline. So the practical is what are you trying to achieve? If you're trying to achieve the maximum deferral period, you're gonna set the payout rate at five, which is the lowest that you're allowed to set it up. It may be the case. So in, in the particular hypothetical that you gave, it would depend on do they want it to last for just their lives? Or do they want to include the kids as well? And so there is, if people let's say people have no heirs, 'cause some people have no heirs, they don't care what happens, then they might, then we can play with it and we, if there's a couple in their, whatever the ages are, we can say, okay, you can set the payout up to this amount and still qualify.

And that even if you're not taking it every year, that's the maximum that you can take and still have it qualify. And that in some sense. Given the constraints that you've specified that's optimal. And generally that, that the older you are, the higher that if you don't have errors, the older you are, the higher that payout can be.

But of course it gets to a certain point where I ran one yesterday for a couple. I think they were both 80 and you could have a 20% payout, but it's just, okay, you're gonna get 20% of it, but now your capital's gonna be less almost for sure each year. So that it's gonna go down. And most people, unless they have a really specific reason, that's probably not good financial planning, even if it's in some sense tax optimal.

Jenni: Got it. So I guess it's like a balance, right? I'm just thinking about it like a lower payout helps increase potentially the deferral benefits, right? 'cause you're, this thing is just staying in there longer. At the same time, you also are trying to maximize the payout to the family. And so you're also trying to manage I wanna get.

Money out, right? So that if the goal is to maximize the family's income, you also don't wanna take too little because what if it ends and the people die and you never get it out and it just goes to charity. So how do you think about, how do you help families balance those things?

Roger: So what we typically look at is all the actuarials that you were talking about, the ages, who's there. And then if you're worried about people prematurely dying, then you probably would wanna have life insurance. So a case where you might want to have life insurance. And most cases that I've seen where you might want to have life insurance for the trust.

That, in my opinion, that couple ought to have life insurance already anyway, because it's not the trust that's creating the. The risk, it's the exposure that two parents with young children can die. That creates the risk. And we don't sell life insurance. We're not involved in it at all.

But it's just because the other ha the other side of that is that, that these things, depending on how they're structured, can have that actuarial component. But typically what we'll do is we'll look at what are, just like you do when you're doing financial planning, what is the client trying to achieve? Is a client trying to achieve cash flow, flexible cash flow, maximum cash flow. A lot of 'em want minimum cash flow, as I said before, because they're just gonna pay tax on it. Like I think one of the clients that you and I worked on at least wants the option of not having to work anymore, and so that's gonna require more cash flow.

Then the person who is maybe probably a serial entrepreneur and wants to take some chips off the table and then do his next project. So we're gonna look at

all the family factors. Is it one person? Is it a couple? Are there kids? If so, do you wanna at least. Have the option of providing for the kids. We usually do everything with as much optionality as we can. As because for a number of reasons, especially if people have kids who aren't yet like fully formed adults, they, and I think rationally very often think, I don't wanna guarantee this kid who might be five and all five year olds are cute, but you don't know how they're gonna grow up. wanna, you don't wanna ruin 'em, basically. You don't want to take the chance of ruin 'em. And there's easy ways to deal with that. And so those are the kinds of things that we look at in a family context. And then setting that rate is usually, that's a pretty minor element of it, because that's not usually that's never gonna determine anything.

Jenni: Yeah. Got it. Okay. Let's go to just what the ideal candidate is for general remainder trust. Is there. So it's obviously I think needs to have a highly appreciated asset, right? Like there, there's because the benefit is the capital gains deferral. But what is the minimum amount to fund it for this to make sense?

Given the effort it takes to do something like this.

Roger: If the asset is a publicly traded stock, it makes sense at low. At low as about a million. If the asset is well, depends on the type of crypto. If it's an easily traded crypto, it's probably about the same. We've run into, not with your clients, but with our clients. Cryptos that I've literally never heard of and couldn't tell you the name of.

And they just are more work to deal with. Because they're not traded on an exchange and so they, then they're more like a business or real estate. And again, it's gonna depend, but for business or real estate, we're probably talking more like two and a half million, depends on the complexity. It was with a a couple this morning and fortunately their holdings were like a hundred and something million, but the.

You've, it took me like 50 minutes just to understand the structure of what they, their family structure without even knowing the deal structure. It's, so that makes sense, right? And most things are somewhere in between there, right? A business we can usually tell pretty quickly if it's gonna be big enough, but as a kind of a very general rule, a couple.

Two, 3 million is probably the minimum. And then real estate, if it's straightforward like a house or something, that two or 3 million, I mean you could do it for a million. The problem with real estate is it's never totally straightforward. So that's probably where we are, somewhere in that range.

Jenni: Got it. Okay. Any other considerations for like the ideal candidate for trail remainder trust?

Roger: It should be somebody who, it probably shouldn't be a hundred percent of their assets, but you don't have to put a hundred percent in. So if you have $10 million of appreciated stock, you can put in any amount. We and it's a good question. We have done them, I think. There's age, you wanna say age, but I think we've actually done them for people as young as 32, which I think is our joint client when she started.

She's probably older than that now. And as old as 87, I think there's no maximum. The the easiest is publicly traded stock. That's the easiest. If you have publicly traded stock, we could have this done for you. Not by this Friday because we're recording this before Thanksgiving but very quickly, if it's a business, you have to have time to do your planning.

It's.

Jenni: Yeah.

Roger: It can be frustrating if you're, if you have a deal that's closing next week and you come to us the week before, it's okay, there's just not time to get the due diligence done. So the more, the farther in advance that you think about it, the better. Obviously bigger is better there, there are certain ages below which you can't qualify for a lifetime trust.

And that's somewhere around late twenties. I don't know how many

Jenni: 20 people with many millions of dollars. There are, maybe there are nowadays. Maybe there are.

Roger: Yeah, there are a lot more there than there used to be, although there, as we were talking about before we started recording, there are fewer than there were a couple weeks

Jenni: Yeah.

Roger: And, and, willingness to basically deal with professionals, right? Because there's certain things that you are gonna do yourself and if they're probably the same people who are gonna deal with someone like you, they have to be open to. Essentially not knowing everything and not being the master of every single detail because they haven't spent their whole life doing it

You have or we have.

Jenni: You've really spent your whole life in this space spiff, so you definitely know this stuff. What about like the use case? I think a, like a use case that would come up a lot for our clients is you have somebody who is holding onto stock in a startup that has not yet gone public, has not had a liquidity event.

But they're starting to think maybe their company has filed and they're, and they're looking at a lot of. Potential upside. And so part of this, they're thinking this might be a good idea. At what point should they start planning? And then I guess at what point can they actually put the stock into a chair board Remainder trust.

Roger: So that's a really good question. I would say the answer when they should start thinking about planning is as soon as they think about it. The, and this sounds like it wouldn't happen, but I've seen it happen a couple times in the last few months. Somebody has stock. And they don't control the liquidity event because it's not for whatever reason, it's a takeover or it's a buyout or whatever.

And they thought they had more time than they did. It's not that they didn't have enough time. It's they didn't have enough bandwidth. And so the main issue is most likely gonna be is there something in the stockholder agreement that prevents them from transferring it? Before the IPO or is there something in their employment agreement?

And so those things by definition, have to be looked at on a case by case basis. And you are usually gonna need to get somebody at the company to give you the time of day. And the closer you get to a deal, the harder that gets to get.

Jenni: Yeah.

Roger: That's my experience.

Jenni: that actually common? Like that you would be allowed to, my impression had been that you really have to wait for it to be liquid before you can do anything with it. But could you actually put let's say you have vested restricted stock in a non-public company. Is that possible?

Roger: It depends on, yes, it, it can be. But there, as I say, there's almost always a shareholder agreement. And the shareholder agreement. 

Jenni: I.

Roger: A lot of them are very restrictive on transfers, but transfers like this don't actually, they don't, they might not be in the letter of what you're permitted to do, but who, somebody at the company, it might be a board, it might be a general counsel has the ability to approve it anyway.

And that's what I'm saying is that's the person or the board or the group that you wanna get. Before they're like just tunnel vision focused on getting this IPO done.

Jenni: That said, is there any benefit to transferring in beforehand? Let's just take two examples. Most common restricted stock in a startup company and incentive stock options. So typically what happens, let's just take the IPO as the example. Now all of a sudden your restricted stock is gonna have a double trigger vest.

You're gonna have to owe tons of, there's a lot, you, a bunch of it will get withheld to pay for ordinary income taxes, right? Just like any compensation income and. Does the trust help with that? Or you're like, no, you gotta pay that anyway.

Roger: Yeah, no, the trust does not help you with compensation income.

And so that's, potentially depends on the exact arrangement that the client has. But in some cases I've seen it makes sense for them early on when the valuations are low, take the tax hit, now they get the stock and, but they did pay tax, but they paid tax at a much lower total dollar number than if the thing actually works. And so that's probably something that people should be talking to you about if they have something that they think. Is likely a hit, but still has an arguably, or has a low value on, it's not public, but it still has a value that someone can, they, the companies calculate these values 

Jenni: okay, so just a few last questions. What are some of the biggest misconceptions people have about charitable remainder trust?

Roger: So I would say ironically that you have to really be interested in charity and that, and there, the reasons for that is, I alluded to a little bit earlier, is. For 30 years or more, chair remainder trusts have been mostly promoted by large charities with planned giving departments targeting their older segment of donors with the aim of generating a very large charitable gift.

While making it feel a little bit better for the donor, and so that's probably the biggest misconception is that you don't have to be particularly focused.

Jenni: Yes. Now we know you don't wanna be an asshole and not care about giving but the point is like you can actually satisfy two things with one stone. You can leave money at the end of your lifetime for charity while still maximizing income to you and your family. And that's the beauty of this tool.

And it's very flexible. There's a lot of ways. Okay. Tell me when this thing, what are the risks with this thing? What about when it goes wrong? You've done this and now you're like, oh crap, I actually, I need that money because I wanna start a business, or I wanna buy this house, and now all this money's locked in the CRT or whatever.

Like when you see people regret it, like why do they regret it? And what are the, are there any exit pass out? Once you've actually put money into a charitable remainder trust?

Roger: Yes, there are. And if you, so I've never seen anybody regret it right away. It's not that they regret it, it's that something changes in their life that they didn't anticipate. And give you an example, the, collapse of the.com bubble

We had so we, this was back in like 2003. A guy had been referred to us who was in exactly the position that you're talking about.

He had been rich and he had put a relatively small amount into a ger remainder trust, and that was the only part of his portfolio that got diversified. So it was the only thing left standing we figured out how to get him a lump sum in exchange for his right to receive income. And he was a relatively young guy, so it was a long stream.

And so we were able to figure that out and that's something that we've done over and over again for people over the years. So if you put the money in, you retain that income, that right to the income, which itself is a capital asset, and

you can sell it so you're not stuck.

Jenni: Yeah, that's actually, I think how I originally found you guys is there was a lot of material out there just about if you want, if you needed to get money out your interest. There are ways that you guys have helped people to do that. So I guess the bottom line is there is an escape hatch.

If your life changes in the future, say 10 years down the line and you realize you, you actually need access to that lump sum money,

Roger: that's right. Yeah. Yeah.

Jenni: You bring up a good point. We haven't talked about this yet, but okay, after you put, let's just take, go back to the example. You got. You were fortunate enough to have, be part of a startup that went iPod and now you have, this amazingly appreciated stock.

Which part? A portion of which you put into A CRT. Let's say you put 3 million bucks in the CRT. Okay. Once it's in the CRT, what happens and like, how are these typically? Invested in the ct. Obviously it's up to the discretion of the grantor, but yeah, tell me what

Roger: So are you asking how the trusts are invested?

Jenni: Yeah, exactly. Yes. So you, I think the, a key point that we haven't discussed is the main benefit or one of the key benefits is to get out of that concentrated asset and diversify and not without ha while deferring the capital gains. 

Roger: Yeah, so that's right. Yeah. You sell the asset, say you put in $5 million worth of X, Y, Z and sell it. Now you have $5 million of. Cash. You as the investment advisor can invest that almost any way you want. When I say almost, there's a couple of things you have to be mindful of. You have to avoid what they call a prohibited transaction.

So you can't do a transaction like you couldn't invest in the grantors. Next business venture for the most part. There may be ways to do that. But mainly you're gonna be doing regular investments, portfolio investments, stocks, bonds, real estate, whatever you know, you even can do crypto alternatives.

Mostly what you have to watch out for is what they call unrelated business income. And the way you generate unrelated business income is the trust itself borrows uses leverage. You shouldn't do that. You shouldn't. The trust itself shouldn't borrow to make an investment. So a no margin investing.

And the other thing that can produce unrelated business income is actually running a business that's not a C Corp. So you wouldn't wanna run a car dealership and have it owned by a trust unless it was a C corp.

But the kinds of things that investment advisors like you do are almost all fine, even including a lot of alternatives just have to alternative.

You gotta look at 'em just to make sure don't produce unrelated business.

Jenni: Yeah. Got it. Great. Okay. If is there if someone is listening to this and is I'm interested, what's your piece of advice about like next steps and what is the best way for folks to reach you if they want to talk more about this?

Roger: They should, if they're listening to this and they're interested, maybe they should give you a call because you're in the area. If they wanna reach us directly they can find us online. At SterlingFoundations.com just like it sounds. And or they could email me roger.silk @sterlingfoundations.com.

Jenni: Great. Any piece of it, any less piece of advice to somebody who is in this situation and might be interested?

Roger: I really do think that if you're in that situation and you don't already have somebody who is an advisor who's gonna look at your whole picture, probably comes before the specific tax planning. So I'm not trying to drive away business, but I think that they probably really should call you first.

Jenni: Cool. Thanks for selling our services, but awesome. Cool. Anything else you wanna mention be that I haven't asked you already?

Roger: No, I think we covered it. Thank you.