A margin account is a brokerage account that allows the Trustee of a Charitable Remainder Trust to buy securities with money borrowed from the broker. A Charitable Remainder Trust (CRT) can include an optional provision that gives the Trustee the power to operate margin accounts and pledge securities.

The inclusion of this language is not recommended and should be used very carefully because this can be deemed to create debt-financed property in the nature of "acquisition indebtedness" which gives rise to unrelated business taxable income (UBTI). The existence of UBTI can cause the trust to lose its exemption for any year in which it has UBTI. In that case, the CRT will be taxed as a complex trust under IRC 661, but will not lose its qualification as a CRT. See Private Letter Ruling 9703027.

What about short sales? A CRT can also include an optional provision that gives the Trustee the power to make short sales. Generally, unearned and investment income, cash as dividends, interest, and capital gains are not considered UBTI.

The IRS formerly took the position that a short sale was a sale of "borrowed securities", for example in Private Letter Ruling 9319005. However, in Revenue Ruling 95-8 the IRS decided that a short sale did not generate UBTI.