Answer:

This question may seem simple, but the answer is not so easy. In fact, there are experts who make their living answering just this question.

Estate tax liability depends on the year in which you die and the value of your estate when you die (see the following chart).

Thus, you can minimize estate tax by reducing the value of your estate until it is below the applicable exclusion amount. There are many ways you can accomplish this. The best way(s) for you may not be the best ways for others and vice versa. (Note: We're discussing only federal estate tax here. Your estate may also be subject to state death taxes. See a tax attorney for more information about state death taxes.)

One way is to make lifetime gifts. Be aware, however, that certain lifetime gifts may trigger gift tax (Note: Though estate taxes will not be imposed in 2010, the gift tax remains in effect.). Gifts that do not trigger gift tax include the following:

• Gifts made to U.S. citizen spouses and certain charities
• Gifts of $128,000 or less made to non-U.S. citizen spouses (in 2008)
• Certain payments made for tuition or medical expenses on the behalf of others
• Gifts up to the annual gift tax exclusion amount of $12,000
• Gifts made that fall under the gift tax applicable exclusion amount of $1 million (Note: Any portion of the gift tax applicable exclusion amount used for lifetime gifts effectively reduces the applicable exclusion amount that will be available for estate tax purposes.)

See a tax attorney for more information about federal and state gifts taxes.

Another common technique to minimize estate taxes is to transfer assets to an irrevocable trust. Such a transfer may be subject to gift tax on the value of the assets at the time of the transfer, but the assets, plus any future appreciation, are removed from your gross estate. There are many types of irrevocable trusts, each created for a specific purpose. Be aware, however, that as the name implies, an irrevocable trust cannot be revoked or amended.

This is just a brief glimpse of some of the techniques used to minimize estate taxes. For more information, or to discuss how these techniques might apply to your own situation, you should consult a qualified tax attorney.