Professional athletes are earning three to five times more today than they did in previous decades (accounting for inflation) but often struggle to manage their newfound wealth skillfully, states an article recently published in Barron’s. Its author, estate planning technician/attorney Jonathon Morrison, reveals a pro tip for financial planners working with pro athletes: charitable lead annuity trusts (CLATs) are underutilized tools for stabilizing and growing unprecedented philanthropic estates.
“Sports Agent? Check. Signed contract? Check. Tax plan? Huh? It’s not often a 20 something athlete focused on their career thinks about taxes, investments, or estate planning,” says Robert Pagliarini, Ph.D., CFP, EA, Founder and President of Pacifica Wealth Advisors. Though sports managers are winning unprecedented earnings for their clients, many fail to guide these athletes towards the right estate planning tools. Sports Illustrated reported that approximately 78% of NFL and 60% of NBA players filed for bankruptcy within two years of leaving the game. “Whether your biggest concern is your college NIL deal, your next professional contract, or how to create financial boundaries with your friends, you should have a team that is objective in your corner,” says Grace Kilpatrick, CEPA of the sports & entertainment firm, North Star Resource Group.
It’s obvious pro athletes need more skillful financial support and management. “Many athletes are increasingly leveraging Charitable Trusts to achieve their philanthropic goals while also preserving wealth and maximizing tax benefits. These trusts offer opportunities for both immediate charitable impact and long-term wealth accumulation through compounding growth, making them a powerful tool for legacy planning and giving back to communities,” said Julio Gonzalez, CEO of Engineered Tax Services Inc. While some financial managers lean on tax-mitigation strategies like the Charitable Remainder Trust, Morrison asserts that the less widely known Optimized Charitable Lead Annuity Trust (OCLAT) offers a prime solution. In his peer-reviewed cover article in Estate Planning Journal, Morrison explains how favorable rulings and regulations over the past 50 years earned the CLAT its title as the most opportune IRS-approved income tax deduction vehicle available for the working rich, the ultra-wealthy, and individuals experiencing a significant capital event.
The Optimized CLAT pushes the “regular CLAT chassis” as far as IRS case law permits, maximizing the contributor’s tax and financial benefits, akin to what LPL Financials’ Sports & Entertainment Accredited Wealth Management Advisor (SE-AWMA) Thomas Elms calls, “the two most important planning aspects for professional athletes, tax planning and cash flow management.” The OCLAT integrates the charitable trust into a year-end tax deduction strategy that delivers four key benefits to “outperform nearly all other traditional investment vehicles”:
i) The contributor benefits from a dollar-for-dollar tax deduction in the funding year (reducing the athlete’s annual tax bill 30%), allows a large funding cap (30% AGI);
ii) The OCLAT returns an expected 2-5x the initial contribution amount back to the athlete after significant donations to charity are made over a term of years;
iii) OCLAT assets may be gifted to children or heirs without the 40% federal gift/inheritance tax; and
iv) OCLAT assets are exempt from the contributor's personal creditors.
Projects like Ayesha and Stephen Curry’s Eat. Learn. Play. Foundation—which has raised over $47 million since its founding in 2019—show what’s possible when a professional athlete’s financial gains and philanthropic vision meet strong financial planning. “It creates peace for the benefactor that they have built a legacy that reflects their values. When a donor, their advisors, and the non-profit work together, it results in a powerful, long-lasting partnership that extends beyond the transaction,” affirms Nicola Lawrence, Associate Vice President of Philanthropic Advising at Phoenix Children’s Hospital Foundation.
OCLATs can even account for common challenges pro athletes face, like injuries. “In the event of unforeseen circumstances, like an injury that affects income, the IRS allows for the early termination of an OCLAT—with the condition of fulfilling all remaining charitable payments,” Morrison explains. “There is a tremendous emphasis on discipline surrounding an athlete’s success on the field, but rarely is the same time spent developing financial strategies like an OCLAT which will bear fruit upon retirement and upon their legacy,” says Pai Charasika SE-AWMA, founder of Pro Athlete Wealth.
“How Pro Athletes Can Hit an Estate-Planning Home Run” reveals in-depth tax planning strategies and recommendations for wealth advisors, sports managers, professional athletes, chief investment officers, CPAs, SE-AWMAs, player’s associations, and philanthropists. Visit Jonathon Morrison at Frazer Ryan Goldberg & Arnold LLP at www.frgalaw.com/attorneys/morrison to learn more, and to discover OCLAT research, FAQs, and tax planning materials.
Follow Jonathon on LinkedIn at www.linkedin.com/in/jonathonmorrison
This article originally appeared on Barrons.com
About Jonathon M. Morrison
Jonathon Morrison is a senior partner with Frazer, Ryan, Goldberg & Arnold, an Arizona-based tax, trust, and estate-focused law firm recognized in the 2024 edition of Best Law Firms. Licensed in both Arizona and California, his practice focuses on advanced estate-planning solutions for high-net-worth and ultra-high-net-worth clients across the country. As one of the top tax-planning technicians in the nation, Jonathon has designed, drafted, and implemented estate plans for hundreds of founders, C-level executives, Midas List venture capitalists, and angel investors associated with the world’s most prominent tech companies. He is a Certified Specialist in Estate Planning, Trust and Probate Law in California.
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