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 $114,000 or less made to non-U.S. citizen spouses (in 2004)
• Certain payments made for tuition or medical expenses on the behalf of others
• Gifts up to the annual gift tax exclusion amount of $11,000
• 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 create an irrevocable trust during your lifetime and transfer assets to the trust. To the extent that the assets you transfer to the trust exceed the applicable exclusion amount available in the year of your death, you may have to pay gift taxes on those assets. However, the taxes will be calculated on the value of the assets at the time of transfer, not on their potentially higher value at the time of your death. This can add up to significant estate tax savings if the assets are appreciating rapidly (e.g., real estate). Once in the irrevocable trust, these assets are forever removed from your estate. However, you should understand that to achieve this benefit, the assets transferred to your irrevocable trust can never be transferred back to you--the transfer is irreversible. They will remain in the trust until distributed to your beneficiaries according to the terms of your trust agreement.

If you are not able or willing to transfer significant assets to a trust, you can set up an irrevocable trust to purchase life insurance on your life. Then, through premium gifts to the trust each year, the trustee can support the policy until your death. At your death, the life insurance proceeds completely escape any potential estate tax liability.

Like the trust technique, many other methods exist for freezing the present value of your estate and shifting any future growth to your successors.

There are also techniques that are actually implemented by your executor after your death. These are known as post-mortem techniques.

Again, this is just a brief glimpse of some of the ways you can minimize estate tax. For more information, or to discuss how these techniques can apply to your own situation, you should consult a qualified tax attorney.