Maximizing Tax Planning Strategies with CLATs, OZs, and DAFs
Charitable Lead Annuity Trusts (CLATs), Opportunity Zones (OZs),and Donor-Advised Funds (DAFs) are all viable options for tax planning, each offering its own merits.
‍
- ‍CLATs, which allow you to reduce your taxes after selling an asset, tend to be high ROI but have the longest path to liquidity.‍
- OZs have a good ROI and offer more initial liquidity but less diversification. They allow you to reduce your taxes after the fact and in future tax years‍
- DAFs give you the freedom to donate (and take a tax deduction) now without committing funds to a particular charity, and the funds can be invested in the meantime.
How does a Charitable Lead Annuity Trust work?
CLATs are trusts that allow you to donate assets in exchange for an immediate tax deduction. You put 
money into the trust, deduct up to 100% of the value of your donation, spread your donations out over 
many years, invest the money in the meantime, and receive what’s left over at the end of the trust’s term. 
Because you can’t withdraw your money until the end of the trust’s term, most people treat a CLAT 
like a retirement account.
How does an Opportunity Zone work?
OZs are a way to defer capital gains taxes on capital gains you’ve recently realized. If you roll eligible gains into a Qualified Opportunity Fund within 180 days of realizing the gain, two forms of tax incentive are available:
Capital gains may be deferred until the investment is sold or exchanged, or the end of 2026, whichever comes earlier. The freedom to donate (and take a tax deduction) now without committing funds to a particular charity, and the funds can be invested in the meantime.
You can save even more through an adjustment in cost basis of your investment. If you hold the investment for at least 10 years, you can avoid taxes entirely on the sale of the OZ investment.
‍
How do Donor-Advised Funds work?
DAFs exist for the sole purpose of supporting charitable organizations. The main benefits are twofold: 1) When you contribute cash, securities or other assets to a DAF, you are usually eligible to take an immediate tax deduction, just as if you had donated the funds directly to a charity. 2) At the same time, you’ll be able to invest the funds, they’ll grow tax free, and you can give the additional gains to charity in the future, tax free.
Comparing the ROI of Each Structure
Post-tax return on investment after 10 years (discounted by the time value of money to calculate their net present value.
Assumptions
Goal: Evaluate each of these tax planning structures based on post-tax return on investment after year 10 years. (Any payouts that might happen after 10 years are discounted by the time value of money to calculate their net present value in 10 years.)
‍
The individual is 35 years old, based in California, with $1m of appreciated assets at a $0 cost basis. 
They expect a 35% tax rate and for the stock market to grow 10% annually, while an OZ investment would appreciate 9% annually (after fees).
- ‍CLAT (30-year term): $1,971,897 – additional 44% return
- OZ: $1,828,845 – additional 33% return‍
- DAF: N/A — you are donating your funds
- No Tax Planning: $1,373,934
‍
Savvy is a Registered Investment Advisor with the Securities Exchange Commission. This registration with the SEC does not constitute a professional specialty designation or endorsement. Savvy only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. Savvy does not provide tax or legal advice. Investors should work with their own professional (attorney, tax, insurance) regarding consequences. if any, as it relates to their circumstance and the applicability of any particular tax strategy. The information contained herein has been obtained from sources that are believed to be reliable. However, Savvy does not independently verify the accuracy of this information and makes no representations as to its accuracy or completeness. Information presented herein is for discussion and illustrative purposes only and is not a recommendation or an offer or solicitation to buy or sell any securities. Hypothetical or simulated performance is not indicative of future results, but an illustration of the benefits of these structures and do not represent the results achieved by all Savvy clients. Past performance is not indicative of future results.
Meet
Jacob DuBose
Hello there! 👋🏼 I'm Jacob, a seasoned wealth advisor at Savvy with over two decades of experience. My journey began in the tech sales industry, where I developed a keen interest in the decision-making process and financial planning. Throughout my extensive career in financial services, I have worked as an options trader, retirement planner, financial planner, and tax specialist. I’m here to help you reach your financial goals.
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Maximizing Tax Planning Strategies with CLATs, OZs, and DAFs
Charitable Lead Annuity Trusts (CLATs), Opportunity Zones (OZs),and Donor-Advised Funds (DAFs) are all viable options for tax planning, each offering its own merits.
‍
- ‍CLATs, which allow you to reduce your taxes after selling an asset, tend to be high ROI but have the longest path to liquidity.‍
- OZs have a good ROI and offer more initial liquidity but less diversification. They allow you to reduce your taxes after the fact and in future tax years‍
- DAFs give you the freedom to donate (and take a tax deduction) now without committing funds to a particular charity, and the funds can be invested in the meantime.
How does a Charitable Lead Annuity Trust work?
CLATs are trusts that allow you to donate assets in exchange for an immediate tax deduction. You put 
money into the trust, deduct up to 100% of the value of your donation, spread your donations out over 
many years, invest the money in the meantime, and receive what’s left over at the end of the trust’s term. 
Because you can’t withdraw your money until the end of the trust’s term, most people treat a CLAT 
like a retirement account.
How does an Opportunity Zone work?
OZs are a way to defer capital gains taxes on capital gains you’ve recently realized. If you roll eligible gains into a Qualified Opportunity Fund within 180 days of realizing the gain, two forms of tax incentive are available:
Capital gains may be deferred until the investment is sold or exchanged, or the end of 2026, whichever comes earlier. The freedom to donate (and take a tax deduction) now without committing funds to a particular charity, and the funds can be invested in the meantime.
You can save even more through an adjustment in cost basis of your investment. If you hold the investment for at least 10 years, you can avoid taxes entirely on the sale of the OZ investment.
‍
How do Donor-Advised Funds work?
DAFs exist for the sole purpose of supporting charitable organizations. The main benefits are twofold: 1) When you contribute cash, securities or other assets to a DAF, you are usually eligible to take an immediate tax deduction, just as if you had donated the funds directly to a charity. 2) At the same time, you’ll be able to invest the funds, they’ll grow tax free, and you can give the additional gains to charity in the future, tax free.
Comparing the ROI of Each Structure
Post-tax return on investment after 10 years (discounted by the time value of money to calculate their net present value.
Assumptions
Goal: Evaluate each of these tax planning structures based on post-tax return on investment after year 10 years. (Any payouts that might happen after 10 years are discounted by the time value of money to calculate their net present value in 10 years.)
‍
The individual is 35 years old, based in California, with $1m of appreciated assets at a $0 cost basis. 
They expect a 35% tax rate and for the stock market to grow 10% annually, while an OZ investment would appreciate 9% annually (after fees).
- ‍CLAT (30-year term): $1,971,897 – additional 44% return
- OZ: $1,828,845 – additional 33% return‍
- DAF: N/A — you are donating your funds
- No Tax Planning: $1,373,934
‍
Savvy is a Registered Investment Advisor with the Securities Exchange Commission. This registration with the SEC does not constitute a professional specialty designation or endorsement. Savvy only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. Savvy does not provide tax or legal advice. Investors should work with their own professional (attorney, tax, insurance) regarding consequences. if any, as it relates to their circumstance and the applicability of any particular tax strategy. The information contained herein has been obtained from sources that are believed to be reliable. However, Savvy does not independently verify the accuracy of this information and makes no representations as to its accuracy or completeness. Information presented herein is for discussion and illustrative purposes only and is not a recommendation or an offer or solicitation to buy or sell any securities. Hypothetical or simulated performance is not indicative of future results, but an illustration of the benefits of these structures and do not represent the results achieved by all Savvy clients. Past performance is not indicative of future results.
Meet
Jacob DuBose
Hello there! 👋🏼 I'm Jacob, a seasoned wealth advisor at Savvy with over two decades of experience. My journey began in the tech sales industry, where I developed a keen interest in the decision-making process and financial planning. Throughout my extensive career in financial services, I have worked as an options trader, retirement planner, financial planner, and tax specialist. I’m here to help you reach your financial goals.
