Minimizing Estate Taxes in 2011

If Congress fails to act, the estate tax exemption will revert to $1 million and will force many more families to use estate planning techniques to avoid a 55% estate tax. The following six strategies can help you minimize or altogether avoid estate taxes:

1. Maximize Annual Gifts. Anyone can give gifts up to $13,000 each year per donee without paying gift taxes.
2. Review Life Insurance Policy Ownership. Instead of owning a policy on your own life, transfer ownership to a family member. Then use the $13,000 annual gift exclusion to give that family member  money to pay the premiums. If you don’t want a family member to own the policy outright, set up an irrevocable life insurance trust with the necessary Crummey withdrawal provisions.
3. Put Some Assets in Your Own Name. Jointly held property isn’t included in your estate when you die; instead, full ownership automatically passes to the other owner.
4. Fund College Savings. Money in Section 529 state college savings plans grows tax-free and can be withdrawn tax-free. You can deposit as much as $65,000 at once if you file a gift-tax return that essentially spreads the gift over five years.
5. Pay Tuition and Medical Expenses. You can pay as much tuition, dental expenses, and medical expenses as you want for anyone you want.
6. Consider a Roth Conversion. While a Roth conversion does not eliminate estate tax, it does enable you to basically prepay the income tax for your beneficiaries.

See Deborah L. Jacobs, Six Ways to Leave Less for Uncle Sam, Forbes.com, April 28, 2010.