Nobody likes to pay taxes, but most of us like to take baths. Unless the bath is the kind where money flows out of your pocket and down the drain. If you feel like paying taxes is a lot like seeing your money go down the drain, you will be glad to know about an exciting estate planning opportunity that can help make the IRS take a bath after your death instead of your loved ones.

When you die, the IRS will want your loved ones to pay a tax on the value of everything you owned. The estate tax reaches all of your assets, unless some exclusion or deduction applies. The law gives each of us an exclusion (I like to call it the “coupon”) from the estate tax. You can pass the coupon amount to whomever you want, tax-free. In addition to the coupon, the law gives married couples an unlimited marital deduction so estate tax can be postponed until both Mom and Pop are gone. The marital deduction doesn’t get rid of the tax—it just postpones it. The coupon does get rid of the estate tax to some extent, but it is not enough to eliminate all of the estate tax for many families.

The law also allows an unlimited estate tax charitable deduction. So if you would rather have your money go to charity than to the IRS, you can bequeath all of the assets that would have been taxed at your death (everything over the coupon amount) to charity. But what if you want to give your descendants more than the coupon amount? Imagine sitting in a leaky bathtub. If you do nothing, eventually you and your rubber ducky will be the only things left in the tub. In order to maintain the water level, you will need to add water as fast as it is leaking out. If you add water faster than it is leaking out, the water level will rise, and eventually the tub will overflow.

Imagine the flood that would result if you took a nice long bath (say 25 years) with hot water filling the tub faster than it is leaking out. Now imagine that instead of an overflow of water, you had an overflow of money. This is exactly how CLTs work.

You put assets (hot water) into a CLT (bathtub). The trust agreement says that each year, 5% of the value of the assets will be paid to charity (5% of the water in the tub will leak out). Meanwhile, let’s say that the trust assets are earning income (the faucet is turned on and the tub is being filled) at the rate of 7%. The law allows us to pretend that the trust is earning only the applicable federal rate (AFR), which is set by the U. S. Treasury each month. If the AFR is 2% at the time we created the CLT, then we get to say that the trust will grow at a rate of only 2%. Net result? If payments are made to the charity monthly, the IRS will make believe that the trust will be completely exhausted in about 26 years, even though it will have far more in it at that time than when the trust was created. The best part is that all of the trust assets will go to charity and your loved ones, and not a cent will go to the IRS.

SCOTT MAKUAKANE is a lawyer whose practice has emphasized estate planning and trust law since 1983. He hosts Est8Planning Essentials, a weekly TV talk show which airs on KWHE (Oceanic channel 11) at 8:30 p.m. on Sunday evenings. For more information about Scott and his law firm, Est8Planning Counsel LLLC, check out

By using a charitable lead trust (CLT), you can give assets to charity and your loved ones, without having to give anything to the IRS.