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On the date of your death, if your estate exceeds the applicable exclusion amount, your estate may have to pay federal estate taxes.  The exclusion amount depends on the year of death. 

If an estate is subject to federal estate tax, the net value of the estate (gross value of the estate minus debts, charitable bequests, and final funeral and medical expenses) over the applicable exclusion amount is taxed.  

There are several different methods to reduce estate taxes. Below are some of the most popular techniques: 

  • Tax-free Gifts:  An individual can give up to $14,000 in 2017 ($15,000 in 2018) to individual recipients without paying gift tax.  By giving your cash away, you reduce the size of your estate and the eventual estate tax bill.

  • AB or ABC Trusts:  With this type of living trust, spouses leave their property in trust for their children, but give the surviving spouse the right to use property in the trust for life. This approach keeps the second spouse's taxable estate half the size it would be if the property were left entirely to the spouse.  For married couples, the use of basic AB Trusts or ABC Trusts in their estate plan can significantly reduce or even eliminate both federal (and state, where applicable) estate taxes assessed against their estates.

  • Life Insurance Trusts let you take the value of life insurance proceeds out of your estate. For married couples and individuals, the use of an Irrevocable Life Insurance Trust (ILIT) to hold and own life insurance offers two benefits: (1) life insurance owned by an ILIT will remove the value of the insurance proceeds from the insured's taxable estate; and (2) the insurance proceeds can provide immediate cash to pay bills, expenses and taxes.

  • Charitable Trusts involve creating a charitable trust, such as a Charitable Remainder Trust, that gives you a charitable income tax deduction when the trust is funded and gives your estate a charitable estate tax deduction after you die. 

  • A Qualified Personal Residence Trust allows you to live in your home for a period of years and then the home will pass to your heirs at a reduced value for estate and gift tax purposes after the period ends.