A crucial aspect of estate planning is a strategy to minimize or even eliminate the amount of taxes that your heirs will have to pay. The IRS allows you to transfer up to $2,000,000 to your beneficiaries tax-free. Any portion of your estate that is over $2,000,000 will be subject to estate taxes at rates as high as 45%.

There are a number of legitimate ways in which you can minimize your estate taxes. and ensure your beneficiaries receive more of your estate proceeds than the government. Here are ten of them:

1. Take Advantage of the Unlimited Marital Transfer
   The unlimited marital deduction allows for the free transfer of assets between spouses. You may transfer any of your assets outright to your surviving spouse and the entire amount will be excluded from your estate. However, to qualify for this unlimited transfer, your spouse must be a US citizen. In the event that the spouse is a non- citizen, the most you can gift tax-free $100,000. Upon your spouse's death, his/her estate will have to pay taxes on the total assets.
2. Gift Your Estate Away
   You can give gifts of up to $12,000 each year to any beneficiary you choose, with no gift tax penalty. You can double this amount if you are married, as you and your spouse can collectively gift up to $24,000 per year to each recipient.

   By doing this annually, you can give away a significant portion of your assets in this manner, thereby reducing the size of your estate.

3. Uniform Transfer to Minors
   This is an alternative form of gift giving, in which your beneficiary is a minor. You will give the gift to a custodian for the benefit of the child, who will receive it when she/he reaches the age of majority.
4. Implement an Exemption Trust.
   Because the IRS allows each individual to transfer up to $2 million tax-free, you and your spouse can transfer a total of $4 million. However, when the first one of you dies, then all the assets are simply transferred to the surviving spouse, and you lose the opportunity to use the deceased spouse's credit.

   Also called a bypass trust, the exemption trust is a highly effective way to maximize this credit. It enables you and your spouse to transfer up to the maximum of $4 million to the trust, and thus shelter it from the IRS.

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5. Create an A-B Trust Arrangement
   You can combine an Exemption Trust with a QTIP Trust to create what is called an A-B Trust Arrangement. It maximizes the unlimited marital transfer of assets, and can possibly eliminate all estate taxes that are due following the death of the first spouse.

   With the QTIP Trust, you shift assets to the trust, and following the death of either of you, the surviving spouse will receive income from it.

6. Implement an Irrevocable Life Insurance Trust
   By buying a life insurance policy, your insurance premiums will not only reduce the assets of your estate, but also create an even larger asset in the form of the life insurance proceeds. What's more, life insurance is the least expensive means of providing your beneficiaries with cash with which to pay estate taxes.

   In certain circumstances, the proceeds from a life insurance policy may be included in your taxable estate. An irrevocable life insurance trust (ILIT) is an effective means to avoid these taxes, because the IRS considers it to be a separate taxable entity.

   More on this topic

   • Why Do You Need a Will?
   • How to Revise Your Will
   • Estate Planning Checklist

7. Create a Family Limited Partnership
   This can be an invaluable means by which you can transfer ownership of a family-held business to your children, while protecting your family's assets from any creditors. It also allows for the taxes on any business income to be calculated/based on your child's lower tax rates.
8. Utilize a Private Annuity
   This is essentially the sale of a portion of your assets to your children in exchange of the unsecured guarantee that they will pay annual payments to you over your lifetime. This asset will thus not be included in your estate, although the annual payments you receive will be.
9. Deduct a Qualified Family-owned Business Interest (QFOBI)
   The IRS allows you to deduct a 'qualified family-owned business interest' from your gross estate. Certain requirements must be met, including:
   • You must be either a U.S. citizen or resident, and your business must be located in the U.S.
   • You or your family members must have owned the business for at least 5 of the past 6 years.
   • You and your family have to own at least 50% of the business
   • Your business interest must amount to at least 50% of your adjusted gross estate

   Certain other requirements must be met. See www.irs.gov.

   1. Make a Charitable Contribution
      You can make gifts to charities that they will receive upon your death, and thus reduce the size of your taxable estate. This can be done in such a way that you retain the rights of use on the gifted asset until your death.

   If you make lifetime charitable gifts, you will also benefit from an income tax deduction during your lifetime.