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On this edition of the HABU Accelerator Podcast, we sit down with Jonathon Morrison who provides knowledge on navigating the complex landscape of estate and gift tax planning as it relates to current events and forecasted changes.

Jonathon guides us through ongoing tax law transitions and characteristics of those most impacted. We conclude by exploring synergies within the Optimized Gift Trust that advance traditional concepts through additional protective layers.

Clarity is brought to risks of less experienced advisors for high net worth clients.

Looking ahead, our HABU conference promises deeper dialogue on these sophisticated techniques.

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SHOW HIGHLIGHTS

• Jonathon Morrison, a senior partner at Fraser, Ryan, Goldberg, and Arnold, joins me to demystify the intricacies of estate and gift tax planning in anticipation of forthcoming changes.
• We delve into the urgency to capitalize on current generous exemptions that may decrease due to the scheduled sunset of the 2017 Tax Act by 2026.
• The Optimize Gift Trust is introduced as an innovative estate planning tool that offers a solid defense against IRS challenges and has been well-received by CPAs and clients.
• Jonathon explains the potential legislative changes, including the Build Back Better Bill, and the importance of grandfathering clauses in protecting existing estate plans.
• We highlight the need for rapid execution of estate plans in response to possible reductions in gift tax exemptions and the impact of rising interest rates.
• The discussion outlines the ideal client for these advanced estate planning techniques—individuals or couples with a net worth starting around $10 million.
• He unravels the synergy of the Optimized Gift Trust, combining various IRS-approved mechanisms to maximize a client’s access and control while providing creditor protection and estate tax exemptions.
• Emphasizing the need for expertise in high-net-worth estate planning, we discuss the risks of working with less experienced attorneys.
• Jonathon shares his personalized approach to trust planning, including engaging with CPA firms, utilizing dynamic financial models, and the advantages of a flat fee structure for legal services.
• We invite listeners to join us at the upcoming HABU conference for in-depth discussions on these sophisticated estate planning techniques.

LINKS

Show Notes

About Optimized Gift Trust

GUESTS

Jonathon Morrison About Jonathon

TRANSCRIPT

(AI transcript provided as supporting material and may contain errors)

Jeff: On this edition of the Advisory Accelerator podcast, we welcome back our friend, Jonathon Morrison, senior partner at Fraser, Ryan, Goldberg and Arnold, who's going to help us navigate the incredibly complex world of estate and gift tax and discuss the optimized gift trust and how his firm partners with CPAs to help their clients optimize their estate plans. Take a listen to learn more about what it takes to accelerate your firm's advisory practice. Well, hello again everybody. This is Jeff Palow, and I am the president of the Engineered Advisory family of companies and your host for the Advisory Accelerator podcast, a show that works to help CPAs become more advisory-minded in their practices. On today's show, I'm happy to welcome back our friend, Jonathon Morrison, who is a senior partner at Fraser, Ryan, Goldberg and Arnold, and he's going to help us continue to navigate the incredibly complex world of estate and gift tax planning. As CPAs, I'm sure you've had clients who have turned to you for advice in this incredibly complex area, so I'm looking forward to today's conversation. Jonathon, welcome back to the Advisory Accelerator podcast.

Jonathon: Thanks, Jeff, I appreciate you having me. Yeah, today we're going to be talking about a really interesting solve, a turnkey solution for estate and gifts tax changes that are going to be occurring in about a year and a half, and so it's come a long way on this vehicle, but I think it's going to be a real help for a lot of your listeners.

Jeff: Now the date that you just mentioned. There is the sunsetting of the ‘17 Tax Act, correct I think that expires January 1st of 2026.
Jonathon: Yeah, that's really the kind of the urgency that a lot of the CPAs, a lot of the listeners, are going to be focusing on. We've gone through this a couple of times in 2012 and then in ‘20 and ‘21. And now again in ‘26, where it's use it or lose it. You've got these huge exemptions that you can use right now, at least temporarily, in terms of how much you can gift to your children during life or at death. Right now it's 13, about 13 and a half for a single person and 27 million dollars for a married couple. Those exemption amounts just 20 years ago were like a million dollars. George W took it up to three and a half or seven for a married couple. Obama took it to five and seven for a married couple. Obama took it to five and 10 for a married couple. Trump doubled it to 20 for a married couple. With inflation, we're all the way up to 27 million. But those limits are scheduled to be cut in half in ‘26, unless you use those exemptions through making a big gift. Wow.

Jeff: And last time we were together we spent a lot of time talking about the OCLAT product and you know have had incredible success with that. Today you want to talk about the Optimize Gift Trust.
Jonathon: Yeah, yeah, so I'll touch on both vehicles. I'm going to touch on that CLAT again at the end. But yeah, really, right now we're seeing already I just had seven of these gift trusts come in on Friday alone. So we're already seeing huge waves, people that are trying to get ahead of ‘26. But let's back up for a second and just talk about big picture.
I know it's a pretty technical audience, but the problem wealthy people have is they've got too much wealth, and so there's really two problems. While they're living, they've got a lot of wealth that's exposed to creditors and lawsuits, unless assets are inside of irrevocable trust, there really isn't a whole lot of protection. Even a single member LLC you can do some stuff with some protection. Getting it out of your estate into an irrevocable trust protects those assets. Likewise, perhaps a bigger problem is at death, or at the second spouse's death, there's a 40% federal inheritance tax and some states even have up to 20% state tax. So the government essentially takes somewhere between 40 to 60% of a wealthy family's wealth, total net worth, at death. You've got to file a federal estate tax return within nine months, most CPAs are familiar with that, and then the government needs a big check and you've got to get valuations for every asset, every business, every real estate, and pay that 40 to 60% tax above a certain limit, that's the federal estate and gift tax exemption, and that's what's really in flux and so, yeah, so that's the problem we're trying to solve and I have a solution for.

Jeff: Well, lead us down that path. Last time you did such a fantastic job, focusing on the technical nuance that I know all of our CPAs appreciate. The need is there. The timing is short, let's just start at the top and walk us through.

Jonathon: Sure, yeah. So there's really four headwinds okay, four headwinds ahead of us that are creating some urgency, and then we'll get into the product itself. And I also want to direct everybody to what we're going to cover today. This vehicle, this Optimized Gift Trust, is going to be on the cover of the National Estate Planning Journal in May, next month. Finally. It went through a peer review process without a single substantive change. It's going to be on the cover of the journal, full write-up, legal citations, case studies. This is something that's come a long way.
This solution I developed in 2020. We've since done over 200 of them without a single IRS audit. It is audit defensible. So we pick up to $10,000 of legal and accounting fees. If there ever were an audit, I've got a number of former IRS trial attorneys in my office that would defend it, but none of this is over the line. That's the key to this solution that we'll get into is optimizing it, meaning giving the client maximum access to control with minimum IRS risk.
So, before we get into the product, we talked about the problem, the estate tax, really, and asset protection, and so to solve those problems, and the federal estate tax is notoriously famous to plan around. Okay, the key is plan. A Harvard professor famously says it's an optional tax as long as you plan for it. And I've got a finance accounting background, I've got all sorts of models, but I don't care how much you have, if you've got 20 plus years of life expectancy, we can usually wipe out that estate tax through pretty straightforward, non-risky gifting strategies. But it does require clients, parents to irrevocably gift assets out of their names into an irrevocable trust. So the first headwind is well, you're telling me, Jonathon, you need to gift 13 and a half or $27 million out of my name into this irrevocable trust or business interests out of my name. I want to be able to have access and control. I want to control that money. What if I need to get it back? What if I need to change the beneficiaries who inherit. Well, a well-designed, irrevocable trust, as we're going to get into, you can solve those things. So that's the first one.
The other headwinds are legislative risk. The IRS has lost a lot of cases in the last 40 years in the world of estate and gift tax. That has really opened up the level of access and control that we can include in these irrevocable trusts. But Congress almost patched this up in ‘21, Building Back Better Bill, remember that it didn't pass because of Senator Manchin and Sinema.
But if it had, they were going to abolish grantor trusts, which really encompasses pretty much every flexible, irrevocable trust out there, effectively putting guys like me out of a job, because if you don't have a grantor trust you really can't include much access and control. So there's rumors they could take another stab at abolishing grantor trusts, or i.e. flexible, irrevocable trusts. But under that bill we would have total grandfathering. That's why I did so many of these gift trusts back then, because if you got it funded before President Biden signed it into law you would have been grandfathered in. So again, clients don't want to gift out because of retained access issues. Legislative could plug and kill off these flexible trusts.
And then the two other headwinds are the gift limits which are going down. You can only put so much into these trusts without triggering a 40% gift tax and also interest rates. As interest rates go up, a lot of our major estate tax planning tools, i.e. installment sales for notes and GRATS and CLATS; those become less attractive. So we've kind of got this golden age of estate planning: huge gift exemptions, low interest rates, great legislative environment that could be changed in the near future and that leads to these ultra-accessible gift trusts. If they're done well, the family can get assets out of their name, a lot of assets out of their name, and still have total use control in many ways, as we'll get into. So does that make sense?

Jeff: It does. And, Jonathon, let me ask you my guess is, as we are nearing the presidential election and entering that cycle, probably not any major legislation on the horizon between now and the end of this calendar year. It was good to hear that the proposed legislation did include the grandfather clause, but really, what I heard you say there is in 2025, depending on how the election goes and who controls Congress, this could be back on the table. For our listeners, from the time they say go, they've got a client that's interested, they think it's a good fit, they're ready to pull the trigger and go. How long are we talking from start to finish, just so people can factor that into their planning timetables.

Jonathon: Yeah, well, this really gets into my very unique process, which let me just touch on that for two minutes. So I'm a senior partner at the largest trust in the estate firm in Arizona. We have 25 T&E lawyers. It's a huge group. I was at the largest in Silicon Valley. I was out there for a decade at the top. Our top group only had 15, believe it or not and we did IPOs for virtually any company you can think of.
I grew up in Arizona, moved back here in ‘15. Couldn't believe this firm existed. Been around for 35 years, hired best in class in pretty much any area that a wealthy family will need. So we've got about a dozen estate planners. I'm the senior partner that focuses exclusively on advanced planning for large and complex estates. You would think I have an army of junior lawyers. I used to, but I got rid of that model about six years ago. I couldn't sleep at night.
I'm like any other business owner, a control freak, and so what I decided to do was just put in really great systems and processes, take a limited number of cases and charge a premium fee. But I can tell clients look, yeah, you're going to buy my brain. Every document, every memo it doesn't have to rely on passing this down to some third-year lawyer that might make mistakes that aren't caught, or delay or things fall through the cracks. That happens all the time at law firms, especially big law firms, where there's just these senior partners that are sourcing business and passing work down and there's a gap there. And so back to your question on timing. I can guarantee getting these things done within 72 hours. We charge a surcharge, expedited surcharge, but we've done this. There's going to be a sale of a company in like a week or two. You need to rush it. So yeah, I mean I've never missed a deadline.
Again, I did 160 of these in ‘20 and ‘21. Not a single audit. It's compelling. And the process itself once a client goes through it. I do it with financial model, I've got a financial model that I built out. I've got a front-end memo, I've got FAQs and an overview for this particular product. At the end of the process, I've got an instruction manual that I send out for the CPAs and the client, six, seven pages customized, exactly how to operate, the structure, When the note payments should be due, et cetera. So yeah, I've done this over 500 times advanced planning transactions, and once you've done it enough times you master the product, you learn how to communicate it and you develop systems and processes to get it done very quickly.

Jeff: Awesome. Well, I think you've got everybody's attention right out of the shoot here. Let's talk a little bit. Maybe we start with who's the profile and then take us through the OGT as a product.

Jonathon: Yeah, yeah. So you're really looking at anybody that's got a married couple or a single that's got a net worth of, I'd say, at least 10 million. And when I say that that includes the value of businesses and real estate, it's on a minimum. I'd say it's probably more like 15 million because, remember our gift exemptions in ‘20, they're going to go down to somewhere around 7 million for a single person and somewhere around 14, 15 million for a married couple, and so you know, that's kind of, I'd say, right around 15 million. So that's when I start to tell people look, you know, you really don't need this. I make a good living, I don't need. I'm happy to tell people you don't need this. I think 15 million is kind of threshold. Or, you know, keeping in mind also if it's somebody that has, is young or has a they're going to grow their net worth.
Or most of my clients, business owners, where their business is just growing and growing in value and could be sold for a huge multiple. That's kind of your classic case for this type of planning, where you need to get wealth out before the client gets any wealthier. They're already bumping against those limits and maybe in the next few years they could double or triple their estate. So that's kind of a classic case of where you want to gift it. Another case we're going to see over the next couple of years these are people that have I don't know 20 to 50 million, just a nice boring balance sheet, cash stocks, maybe some investment real estate. They sold their company years ago and now they just want to lock-in these gifting limits. So most, when we're not in this kind of environment, most of my cases I'm doing are kind of business owners or people that are they're growing their estate or they already have a large estate, we need to reduce it. But we're going to see a different kind of client that pops up in the next year and a half are people that say, I just want to lock in my exemption. You know I need to do, I need to gift it out, lock-in this big exemption, it's user to lose it and I want all the controls that maybe the business owner, everybody else wants the same controls. So that's kind of what we're looking for.
Okay, let's talk about this so-called optimized gift trust. Let's talk about a lot of the listeners. Okay, I get this a lot. People say, well, everybody kind of knows there's been a lot of talk over the last 10 years about generation skipping trusts and dynasty trusts and SLATS and IGITS, Defective grantor trusts. Okay, All of these things are good, they're just not enough, okay.
So the optimized gift trust, what I did back in 2020, as I said, look, I said attorneys have made this so complicated. They've got all these acronyms. Nobody knows what they mean and how do you distinguish between all these things? Well, take SLATS, for example, Spousal life access trust. That's not an actual trust, that's just a provision within a gift trust to add access and control through a spouse, Okay. So if you say, hey, I've got SLATS, isn't that enough? Well, not necessarily. What if that spouse that has the SLATS powers dies? Well, you're going to need backup access points, and so it's not just you know.
So this optimized gift trust that I developed took everything. I call it a hybrid gift trust. It takes everything that the IRS permits: swap powers and loan powers and slap powers, all the and defective grantor trust powers and generation skipping. It puts it all into one kind of state of the art where we are now irrevocable trust that maximizes the client, the parent's access and control and if it's done right, like the Optimized Gift Trust is, there's literally nothing that we can't do. Our client can make this big gift and still borrow from it. They can put their real estate in and take cash out. That's a swap. They can pay the income taxes for the gift trust.
That's not a gift the so-called effective grantor trust. If they're married, we can have slap powers so we can have one of the spouses being able to withdraw assets out of there. If they're not married, we can have SPAT powers where a trust protector can even appoint assets back to the client to gift it. So we can cancel the trust. We can do all these things that the IRS has either acquiesced over the last 40 years or lost cases. We're just at this point now where irrevocable trusts, American irrevocable trusts, allow for such flexibility, control where in the old days you might have to go offshore to do this sort of stuff. Now we've got a lot, even foreign clients, that are coming to, creating American trust to enjoy the protections under American law but also have all these flexibilities that are now permitted, largely because the IRS has given up or lost on some of this.
So the optimized gift trust, so-called defined, is an irrevocable trust that is, generation skipping, permanently exempt from federal estate and gift tax, immediately and permanently, Number one. Number two, protected from creditors forever. Again, just like generation skipping trusts are exempt from estate taxes forever, these trust assets can be passed down and they're protected from children's, grandchildren's creditors, lawsuits, divorcing spouses. Number three, critically while the client is alive, maximum retained access control. I'm making this big transfer. I still want to control the investments. I still maybe need to be able to get it back, I might want to change the beneficiaries. So this gift trust makes it technically irrevocable, but giving them virtual full control, directly or indirectly.

Jeff: You know, I got to believe our CPAs. The wheels are spinning. At this point. It just does seem like there is a convergence of a lot of things that make this very appealing right now. Are there any instances,
Jonathon, where it doesn't make sense? Is there something that might kick it out? Or just like hey, in this instance, we're not going to recommend that.

Jonathon: Yeah, well, let's. Yeah, I mean, we talked about the net worth level, but let's say you've got a $50 million client. Here's the rub. Here's why I created this OGT in the first place back in 2020. There's just not standardization in my industry. Okay, here's what I mean by that. If you go to Manhattan or Silicon Valley or Chicago and you work at a top firm and you get the right attorney and that attorney is actually doing the drafting okay, so you have a lot of conditions there. They're going to just design the optimized gift trust okay, they're not going to call it that, they're just going to do it, because that's just the right way to do it. It's state of the art.
The problem is, you know, I've been practicing in Arizona for almost 10 years and you get to these relatively smaller markets and Phoenix is the fifth largest metro, right. But the problem is, is the attorneys and professionals don't get enough repetitions, right? When I was in Silicon Valley, I was working on nine, 10, 11, 12 figure estates every day, all day, and had, you know, 500 transactions under my belt. You learn, you know, I didn't know anything until a couple hundred gift trusts in. Smaller markets are really not anything other than those major markets. You get a lot of attorneys that maybe hear seminars or they've done five or 10, they're rarely getting eight, nine figure type clients, and so they're including some of these flexibilities maybe in their irrevocable trust, but not all of them. And so what I see is what I saw in 2021, is a lot of attorneys that don't specialize in high net worth that are doing this very complex. There's so many ways to goof up right. That's why I don't have any junior lawyers. I don't trust them. There's not many senior lawyers in most markets I trust, and so your CPAs, your listeners, are going to maybe you know the hesitancy is to send your clients to a non-specialist, and the specialists are few and far between. There's probably only five in the entire state of Arizona that I would really trust with this type of planning, and they're going to be buried over the next two years. So the hesitancy is yes, I wouldn't, If I had 50 million bucks, I wouldn't put it in one of these trusts unless I was guaranteed that it had all these access controls and that it's been time-tested and the person doing it has done so many transactions. Because when you run the financial model out, Jeff, like 20 or 30 years, the bulk of the client's wealth is going to be in here.
It's like you're building a house, but the thing is it's an irrevocable. Once you've built this house, once you have this irrevocable document, if you haven't baked-in all these flexibilities and controls, you can't change it. It can't be changed. So I joke, I charge a premium fee, but it's like a lot of clients say, well, that's more expensive than I can get down the street. I'm like what, You're telling me, that you know $20,000, $30,000, $50,000, delta.
I'm like you're building a house that there's going to be hundreds of millions of dollars inside and you can't, you might not be able to, if you don't get it right, you're not going to be able to change it, get the money back, do all this stuff. That’s the same delta as like a kitchen remodel. You know most of my clients, you know, have sports cars with wheels that cost $35,000. So I think you need to understand, you know they're not drafting documents. They don't know the strength of these documents. This is really tricky and there are so many ways to screw it up. You've got to make sure that the attorney you're working with has, as deep understanding, has done hundreds of repetitions and that you're actually buying their brain and they're not passing it down. That's my spiel.

Jeff: No, that makes a lot of sense. Talk a little bit, because obviously you're working very closely with the CPA on this and you've got your role and they've got theirs. Talk a little bit about how you create synergy between your firm and the CPAs that you work with.

Jonathon: Yeah, yeah. So my goal is, when I'm engaged or brought into an engagement, my goal is to advocate and represent the client and basically put myself in their shoes. And I think what would I do if I was this client, knowing their net worth, knowing everything I know about tax and trust, what would I do? That's my measurement, okay.
But at the same time, when I'm referred from most of my referrals come in from financial advisors and CPAs my job, what I try to do best, is be a good reflection of that CPA. Okay. So my goal is for that CPA to say at the end of the process, the client comes back and says, hey, thanks for referring me to that lawyer, he made it easy, he had a turnkey solution. Okay, he charged a premium fee, but hey, I got it. He got it done with two or three phone calls in a matter of weeks and I understand it, it was done well, thank you for bringing me in. It's like the same thing when I'm referring a client to a CPA, I want that CPA to be responsive and not talk over their head and hopefully not reinvent the wheel. So yeah, that's my goal. And so yeah, and also to see.
I think another power of this is I've got a finance accounting background and so I model, I've got financial models that I've created for all this stuff, and so I think it's helpful for CPAs to also see the power, monetary savings and the cash flows out 30 years of how this works. So I'd say I relate well with CPAs because of the financial modeling and all the numbers. I'm an attorney that understands numbers. But also the instruction manual that goes out at the end explains exactly how to file the gift tax return and it explains exactly how to operate this.
Cpas and bookkeepers are the ones living with these structures that attorneys put in place. A lot of attorneys set this stuff up and then they don't even have a backend memo. They just say, okay, figure it out. Or CPAs get a copy of the binder the next year and say what you did all this? How do I report this? And so it's just a really, like I said, it's a turnkey solve and I do this for my CLATS and my GRATS and everything. It's just a. I think it's a nice process that CPAs really appreciate.

Jeff: So let's talk about a real world application here. You've got an accounting firm and this is all about education First educating the CPA and then subsequently educating their clients. What works best for you? I mean, the CPA can get educated by listening to this podcast. You've got the cover story coming out in the May issue. I know there's a ton of information on your website, but my sense is it begins initially with a conversation with the CPA that has some interest and then at that point they've got one or more clients that are interested in learning more and having a conversation with you. Do you prefer to do those one-to-one? Do you prefer for the CPA to set up kind of a meeting with multiple clients? What, in your experience, is kind of the best path to the quickest and most sustained result?

Jonathon: Yeah, that's a great question. So, yeah, I've done many hundreds of lunch and learns on advanced planning. So if there's a CPA firm that wants me to do a presentation like this and I share my screen and I show all the numbers and I do all that happy to do lunch and learns for groups. I think most commonly is I'll get an email or a call and say, hey, I've got this client and here's the facts, here's their net worth, here's their ages, here's what they're trying to do. My paralegal, I got a really great 40-year veteran paralegal. She'll usually pick up the phone and gather some initial information and do a short memo for me, but just reach out and give me as much information as you can and what I typically do. I've got again. I've got these processes. I've got a stock form email that I'll respond to that CPA and say, look, this sounds like a good case. Here's the information about the gift trust. It takes no more than 45 minutes to review. Feel free to send this to your client.
I've got an overview for the gift trust. I've got a frequently asked questions about eight pages. It's a great document that answers pretty much most questions and I'll even if I've got enough information, I'll even send over a sample financial model that shows hey, here's the amount that this client should be put into the gift trust to wipe out their estate tax, to protect most of their assets from creditors and then, based on their spending assumptions, make sure that they've got plenty of assets outside of the trust for all their lifestyle spending so that all that future growth of the estate is soaked up outside of that gift trust. Because a lot of times you know I try to model it out so they'll never actually need to actually access the gift trust. We've got backup mechanisms in there. But I think it's critical as the financial modeling to make sure they've got plenty of cash flow outside of the gift trust.
You don't put everything in there and then we usually, after I've sent that TPM, maybe forwards it to their client. Then we can have a 45 minute zoom and I can walk them through any questions that they have that weren't covered in the materials, but also my process. I can walk them through the financial model and change assumptions on the fly. It's not a static model like you get from a lot of the big banks. That's why I developed this model. I like to be able to change all the inputs on the fly at the meeting spending inputs, investment inputs. So it's, and then it's no commitment.
You know I do all these. I have plenty of calls. We don't charge for any of that. And if they decided to proceed, very unique, one-time flat fee, typically tax deductible if they've got any kind of business interest, and you never get another bill from our firm again. Again, I try to solve all these issues that attorneys aren't responsive, Attorneys they have all these ongoing hourly fees. Attorneys talk over my head. You know I try to keep it can be the anti-attorney and so one of those is fee, upfront fee, tax deductible, and then they can call me down the road. They can add assets. We can have annual reviews. They're never going to get another bill from us again.

Jeff: Awesome. So for our CPAs that are listening to the podcast, whether you've got a relationship through engineered Tech Services or through the Growth Partnership or you're part of the HABU Advisory Accelerator, the path here is to reach out to your contact at the organization. They can then get you introduced to Jonathon and, as you just heard, there's kind of a disciplined approach to getting you the information you need and then subsequently cascading that down to your clients. And many of you are already familiar with Jonathon. We had a previous podcast where we talked about the OCLAB and I know, Jonathon, you wanted to circle back to that briefly before we concluded, but just want to throw out a plug quickly. Jonathon will be back with us at our conference coming up the last week of July, the HABU conference down in Plano, Texas. So if you're interested in considering attending and you're interested in this particular product, great opportunity for you to get some face-to-face time with Jonathon at that meeting. And before we wrap things up today, Jonathon, did you want to circle back briefly about the OCLAT that we talked about last time?

Jonathon: Yeah, yeah, I'll touch on that and also I'll say you know, even though I'm licensed in California and Arizona, what's neat about our this is federal tax based planning. The OGT, this is the federal estate tax, and so I'm actually able to practice in all 50 states and I've probably set these up in at least half. So, yeah, so don't let the geography be a barrier. Even if they have an existing attorney that says, look, I don't know how to do advanced planning, I can do Wills and Trusts. I'm brought in to just do as almost like a one-off transaction. But the CPA, of course it's their client, the attorney, if they have an attorney, it's their client. But there's a lot of attorneys that just don't specialize and they acknowledge a lot of risk and they want to bring in a specialist. So happy to do that.
Yeah, the Optimized CLAT still is in play. That's a fantastic vehicle done over 150 of those over the last eight years and remember that is really an income tax deduction play for typically clients that are relatively younger I'd say under 60. And they've had some charitable intent. They want to give to charity or set up a charitable vehicle. So the CLAT's a great way to create a big old income tax deduction. Think sale of business or any asset, or even just high income earners. I've got surgeons and attorneys and wealth managers that make a couple million a year and the CLAT is essentially, it's almost like a synthetic retirement account where they can put 30% of their income into it. Right, it's not like 401ks where you can put $20K into it. If you make $10 million, you can put $3 million into this every single year and it pays out to charities, typically for 20, 30 years. So to get that deduction the optimized clat, you've got to give about three times what you put into it right now to charities. It's based on interest rates. Right now. If you put a million dollars in it, you get a million dollar deduction. You're going to give $3 million to your favorite charity, pretty much years 25 to 30. It's backloaded and then whatever's left in the account can come back to the family free of gift and inheritance taxes.
On a 30-year class the 1-3-5 rule right now a million dollars goes in. I get a million dollar federal and state income tax deduction. I give $3 million to my favorite charities and at the end I should expect $5 million. That assumes an 8% rate of return over the 30-year period, investing that $1 million at 8%, there's 5X at the end. That $5 million can either come back to the client that's not an income taxable event, it's not like a 401k, $5 million just transfers back in kind. Or, more likely, if they've got a sizable estate, they're going to transfer that $5 million to children without any gift or inheritance taxes. It doesn't use up any gift exemption. It's just like a GRAT, if you're familiar with that, and that's an in-kind transfer.
So this is again a great solve for somebody that's you know, just comes to you and says I'm making a bunch of money, millions a year. I'm tired of just putting 401k in profit sharing plan or in DB plan. Isn't there more and this is something that there is more. Again, I have clients every year that will fund this with up to 30% of their income, create a future charitable giving bucket and a wealth transfer bucket at the end. So very compelling. They control the investments, they're the trustees. If you can get 10% return, there's 12X $12 million. 1, 3, 12. I have some clients that are more aggressive with those investments because if the CLAT fails, if you run out of money, can't pay the charities, there's no personal liability to make up that difference. There's just nothing that comes back at the end. So there's only upside. Get your full deduction, million dollar deduction up front, give charities and then have the potential of getting a bunch of money back at the end.

Jeff: For the CPAs that are listening whose ears perked up when you've considering clients that might be charitably inclined. This is a no brainer. We explored it in episode 12, and it was actually almost a year ago, April 5th of 23. So we're only four days off being back to back on an annual basis, Jonathon, but I would encourage you to go back and listen to that episode if you want all the details. Today, fantastic conversation talking about the Optimized Gift Trust and just a reminder, if you want to check out Jonathon and his firm, the website frgalaw.com Frazier, Ryan Goldberg and Arnold frgalaw.com you can get all the information there. And, Jonathon, before we turn everybody loose, anything else that you wanted to share before we wrap.

Jonathon: No, I'd say you know, if you're interested in either of these products, again email me or look at the website. Or, Jeff, you might be able to put links. But we've got overview and FAQ for both the Optimize CLAT and the Optimize Gift Trust, so feel free to reach out directly, but I'd recommend taking a look at those overview and FAQs. It's going to answer a lot of questions, but happy to directly interface if you want to reach out.

Jeff: Jonathon, thanks so much for being with us again. It's always timely and appreciated the level of technical depth that you go into in these conversations. Our CPAs eat that stuff up. So thank you for the time and look forward to seeing you in Dallas.

Jonathon: Thanks, Jeff.

Special Guest: Jonathon Morrison.