The Optimized CLAT (OCLAT) is a special version of a charitable lead annuity trust (CLAT) that has been designed to optimize the tax and economic benefits to the contributor.

OCLAT Resources

1. OCLAT – Infographic
2. Optimized CLAT – Estate Planning Journal Article (Sept 2020 Issue)
3. OCLAT Overview
4. OCLAT Podcast for Tax Professionals
5. OCLAT Podcast for Non-Tax Professionals

FAQ Index

1. The Basics
2. IRS Approval and the Upfront Tax Deduction
3. The Charitable Lock-Up Period
4. Remainder Assets, Tax Filings, Logistics, Fees

BASIC FAQs

What is the ideal client profile for the OCLAT? The ideal OCLAT client (i) has a high income (or sold a valuable asset or business) and needs a large income tax deduction, (ii) is philanthropic, (iii) has sufficient savings outside the OCLAT, and (iv) wants to minimize inheritance taxes paid by heirs.

Why should I fund an OCLAT? Upon funding the OCLAT, you enjoy 3 main benefits: (i) you receive a federal and state income tax deduction equal to 100% of the value of assets contributed to the OCLAT,¹ (ii) the OCLAT assets are immediately exempt from the 40% gift/inheritance tax (with no use of the federal lifetime gift/estate exemption), and (iii) the OCLAT is exempt from your future personal creditors, lawsuits and bankruptcy.

How does this work? You open a new investment account in your name (as Trustee of the OCLAT). You fund the account with cash/stocks/bonds equal to your desired tax deduction amount. You select an initial charitable term (referred to as the charitable “Lock-Up Period”) for a term of years (typically 20-30 years). During the charitable Lock-Up Period, (i) you control the investments of the OCLAT assets, and (ii) each year you must donate a portion of the OCLAT assets to charities pursuant to a fixed schedule (discussed on page 4). After the charitable Lock-Up Period is over, the assets inside the OCLAT account are projected to equal 5-10x the amount of your initial contribution (assuming you invest the assets at 8-10% per year; we stress-test the investment returns using our custom financial model as part of the process). The assets can be either (i) returned to you (without income taxes), or (ii) gifted to your children or other family members, including in continuing trusts that you still control (without income taxes and without the 40% federal gift/inheritance tax).

Can you give me a simple example? Suppose in Q3 2026 you transfer stocks worth $1M into an OCLAT account. You enjoy a $1M federal and state deduction, saving you ~$500k in taxes.² Assuming you select a 30-year charitable term, (i) you would donate ~$3.5M³ from the OCLAT to your preferred charities during the 30-year charitable term, and (ii) there would be ~$4.5M⁴ left in the OCLAT account at year 30 which could be transferred back to you (without income tax) and/or to your children/heirs (without income taxes and without the 40% federal gift/estate tax).

…and you call that the “1-3-5” Rule? Yes: for every $1M contributed, there is a $1M tax deduction, ~$3M to charity, and you can expect ~$5M returned to you at year 30. (It’s not perfect math, but a helpful rule of thumb.)

This kind of sounds like a retirement account with a charitable component – is this better than my 401(k)? You should still fund your other retirement accounts (IRA; 401(k); profit sharing plan). The problem is the funding limit: you can only move ~$60,000 per year into those vehicles. The primary advantage of the OCLAT is that it can be funded with 30% of your AGI, ever year, regardless of how much you make (i.e. if you make $1M a year, you could put up to $300k into the OCLAT every year). Another advantage of the OCLAT is that, unlike your other retirement plans, there are no income taxes when the OCLAT assets are transferred back to you at the end of the term (or gift/estate taxes if the assets are transferred to your children). Retirement assets, on the other hand, are subject to 40-50% ordinary income tax upon withdrawal and the 40% estate tax upon death.

The OCLAT seems too good to be true, what’s the catch? There’s no magic. As further discussed on page 4, the OCLAT simply leverages the relatively low IRS-set charitable hurdle rate (~5% in Q3 2026) which is locked at funding and fixes the charity’s payments. If the OCLAT investments do not outperform the IRS hurdle rate, there will be nothing in the OCLAT returned to you at the end of the charitable term. The Tax Code basically says “we are willing to bet that you cannot invest the OCLAT better than our IRS-set hurdle rate (~5% for Q3 2026 OCLATs)…and, if you can beat that rate, then you can keep the excess…and even gift it to your children, free of gift/inheritance taxes.”

I understand that I have until 12/31 to fund the OCLAT to enjoy a deduction this year – can’t I just wait? Yes, but the two problems are (i) the IRS changes the charitable hurdle rate each month (it roughly tracks movements in the 10-year Treasury yield) so if you believe rates will increase, you may want to fund earlier in the year, and (ii) our firm’s one-time OCLAT setup fee increases later in the year to reflect the surge in demand in Q4 (to minimize fees, we recommend setting up the OCLAT account as early as possible, and then wait until as late as 12/31 to fund the OCLAT account).

Why shouldn’t I fund an OCLAT? The OCLAT is not appropriate if (i) you are not charitable,⁵ or (ii) you do not have sufficient personal assets or savings outside the OCLAT (during the charitable Lock-Up Period, you cannot withdraw or borrow the OCLAT assets).

What is a CLAT? And how is this “optimized”? The charitable lead annuity trust (CLAT) has been in the Tax Code since 1969 and the IRS even published a basic sample form in 2007.⁶ As detailed in one of our Fortune magazine articles, the CLAT is most famously associated with Jackie Onassis of the Kennedy family.⁷ Over the last 50 years, favorable IRS rulings and regulations have made the CLAT much more attractive: there are many ways to structure a CLAT, but the “optimized” version stretches the CLAT as far as IRS caselaw allows to maximize the income tax savings, estate tax savings, and return-on-investment to you and your family. Mathematically and legally, there is no better way to structure a CLAT to “squeeze” any more performance within IRS limits; hence, this CLAT variant is “optimized”.

I wish I had known about this years ago – why didn’t my CPA tell me I could save 30% of taxes each year with the OCLAT? The CLAT is a notoriously underutilized vehicle: most tax lawyers and CPAs have only come across a few CLATs in their entire career, particularly because (i) the CLAT is viewed as a complex vehicle reserved for the ultra-wealthy, and (ii) although CLATs have been authorized since 1969, interest rates have never been favorable for CLATs until the mid-2000s. In 2016, Silicon Valley-trained attorney Jonathon Morrison discovered that a CLAT could be optimized and repurposed as a “synthetic retirement account” for both the “working rich” and ultra-wealthy. After hundreds of hours of research and development, the OCLAT was born. In September 2020, the OCLAT strategy was published and featured on the cover of the national Estate Planning Journal which is widely viewed as the most esteemed professional journal in the tax & estate planning world. Since then, the OCLAT has also been featured in Forbes, Fortune, Barrons, and other major financial periodicals. As of September 2026, attorney Jonathon Morrison has advised on more than 500+ CLAT transactions and has funded an estimated 250+ OCLATs.

It wasn’t until 2016 when Silicon Valley-trained attorney Jonathon Morrison discovered that a CLAT could be optimized and repurposed as a synthetic retirement account for both the “working rich” and ultra-wealthy. After hundreds of hours of research and development, the OCLAT was born.

In September 2020, Mr. Morrison’s OCLAT strategy was published and featured on the cover of the national Estate Planning Journal which is widely viewed as the most esteemed professional journal in the tax & estate planning world. The OCLAT has since been featured several times in Forbes magazine. As of September 2022, Mr. Morrison has been involved in more than 150 CLAT transactions and has funded ~120 OCLATs.

FOOTNOTES

¹ A small number of states do not recognize the OCLAT state income tax deduction, but most major states do (including CA & NY). AGI and itemized deduction limits also must be considered.
² Assumes a California resident in the top tax bracket (federal 37%; CA 13.3%).
³ This amount is fixed based on the best available IRS-set benchmark rate for Q3 2026 (~5%).
⁴ Assumes an 8% annual rate of return which is a reasonable assumption given the extended 30-year term, backloading of charitable donations (discussed on page 4), and more aggressive class of investments typical of OCLATs (typically growth stocks and private equity).
⁵ The Tax Code clearly requires that the creator of the OCLAT possess bona fide charitable intent – if not, all the tax benefits are forfeited. Our law firm has a strict policy that we will not assist clients with OCLAT planning if we sense that philanthropy is not a key objective.
⁶ Rev. Proc. 2007-45.
⁷ https://www.forbes.com/councils/forbesfinancecouncil/2022/08/19/elevating-your-estate-and-legacy-a-lesson-from-jackie-kennedy/

FAQ INDEX

1. The Basics
2. IRS Approval and the Upfront Tax Deduction
3. The Charitable Lock-Up Period
4. Remainder Assets, Tax Filings, Logistics, Fees

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