When you are trying to avoid estate taxes, there are a number of strategies that you can use. The first thing you need to understand is that under the United States Tax Act, the law doesn't distinguish between property given as a gift during your lifetime or after you pass on. If the value of your assets is over an amount set by the government, then the asset will be taxed when it changes hands.
You have the option of transferring a certain amount of your assets -- property or cash -- to other people each year without the gift counting toward the maximum set out in the Tax Act. This would be attractive for people who want to see the people they choose enjoy what would be come an inheritance during the giver's lifetime, and who can afford to do so.
A married couple has the option of using a revocable living trust to protect twice the maximum amount allowed under the law from estate taxes. This is a very common strategy to avoid estate taxes. A living trust is a legal option where the couple transfers ownership of certain assets from themselves to the trust. The trust is administered by a trustee, and it is possible for the couple to appoint themselves as administrators during their lifetime, so they don't give up control over their assets.
A personal residence trust is available for people who have a sizable estate that includes a home which may have appreciated a lot in value over the years. With this option available to avoid estate taxes, you would transfer ownership of the home from yourself to the trust. The advantage here is that the home is not considered part of your estate when you die, and you would only need to pay the same rate of tax as if you had given it to the trust as a gift during your lifetime. This strategy may end up saving you a substantial amount of money. Do keep in mind that a personal residence trust is irrevocable, which means that once you decide to take this step and the documents are signed, that it is a permanent arrangement.
It's a good idea to consult with a qualified estate attorney and your accountant to make sure that the strategies you are considering are legal and will achieve the goal you have in mind when you want to avoid estate taxes. He or she will be able to give you specific advice for your situation.
