Many high-net-worth investors share a common challenge. A significant portion of their wealth is tied up in highly appreciated assets. This may be a concentrated stock position, a business interest, or real estate acquired years ago at a low-cost basis. On paper, this reflects success. In practice, it often creates constraints. Selling the asset may trigger a substantial tax liability; while holding it increases concentration risk. In our experience, many families delay action because they believe these are their only two options, sell and pay the tax, or hold and accept the risk.[1] In reality, there is a third option. Planning.

The primary issue is not the asset itself. It is the lack of flexibility. A concentrated position exposes you to a single outcome. Market shifts, industry changes, or company specific events can materially impact value. At the same time, the embedded gain creates a barrier to diversification due to the tax cost of selling. This often leads to what can be described as a trapped asset. Without a strategy, investors may remain in this position longer than intended, increasing overall risk.

A more structured approach focuses on three objectives, diversification, income, and tax efficiency. The goal is not to eliminate taxes, but to manage when and how they are recognized while improving the overall structure of the portfolio. This is where advanced planning strategies may come into consideration. One such strategy, when appropriate, is the use of a Charitable Remainder Trust.

A Charitable Remainder Trust, often referred to as a CRUT, is an irrevocable trust that allows an individual to contribute appreciated assets into a trust structure. The trust may then sell the asset without immediate recognition of capital gains tax at the time of sale.[2] In return, the individual may receive an income stream from the trust for a defined period, often for life. At the end of the term, the remaining assets pass to a designated charitable organization. This structure may allow for diversification, income generation, and charitable intent to be addressed within a single strategy.

Consider a simplified example. An investor holds a $2 million concentrated stock position with a low-cost basis. A full liquidation would result in a significant capital gains tax. By contributing a portion of that position into a properly structured trust, the asset may be sold within the trust, and the proceeds reinvested into a more diversified portfolio. The investor may receive income from the trust, while a portion of the remaining value may ultimately support a charitable cause. This example is hypothetical and for illustrative purposes only. Actual outcomes will vary based on structure, timing, and individual circumstances.[3]

Charitable Remainder Trusts represent one approach, but they are not the only option. Other strategies may include gradual diversification over multiple years to manage tax exposure, tax loss harvesting where applicable, Donor Advised Funds for those with charitable intent, or exchange funds designed to reduce single stock concentration. Each approach involves trade offs. The appropriate strategy depends on your objectives, time horizon, and overall financial picture.

The common thread across these strategies is intentional planning. Investors who take a proactive approach are often better positioned to reduce concentration risk, create more flexible income streams, manage tax exposure over time, and align their wealth with personal values and legacy goals. Those who delay may find that their options become more limited as circumstances change.

This is particularly relevant in the current environment. Many investors hold assets that have appreciated significantly over the past decade. At the same time, tax policy remains subject to change. This creates both risk and opportunity. Addressing concentrated positions before a triggering event such as retirement, a business sale, or a market shift may provide greater flexibility. Waiting often reduces that flexibility.

At PFS Wealth Management Group, we guide clients through a structured planning process that integrates investment strategy, tax considerations, income planning, and legacy objectives. The focus is not on a single solution, but on coordination. When these elements are aligned, more sophisticated strategies can be evaluated with clarity and purpose. That is where planning creates value through structure and discipline.

If you are approaching retirement or already there, it is worth asking a simple question. Do you have assets that you would like to diversify, but have not acted because of the tax implications? If the answer is yes, you may have more options than you realize. The key is evaluating those options within a structured plan.

We offer an Advanced Planning Review designed for individuals and families with highly appreciated or concentrated assets. In one meeting, you will gain clarity on your current exposure, identify potential strategies for diversification and income, understand the tax implications of different approaches, and outline next steps based on your goals. To learn more, visit www.pfswealthgroup.com or email info@pfswealthgroup.com to request your review. Bringing extraordinary value to extraordinary families each and every day starts with a plan designed with purpose.

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Footnotes:

[1] Based on internal observations from client and prospective client meetings conducted by PFS Wealth Management Group. This is not a scientific study and may not be representative of all investors.

[2] Source: https://www.irs.gov/charities-non-profits/charitable-remainder-trusts.

[3] Hypothetical example for illustrative purposes only. Results will vary based on individual circumstances, trust structure, and applicable tax law.