Cut your estate tax: while the tax is being phased out, here are 10 ways to reduce it now.

• Author: Kronemyer, Bob
• Position: Estate Planning - Federal estate taxes

Why should one be concerned about federal estate taxes anymore? Won't they be history by the end of the decade?

Perhaps. The 2001 tax legislation calls for the federal estate tax to slowly be phased out, by lowering the tax rate and raising the amount that is exempt from taxation. Under the plan, by January 1, 2010, the estate tax will he gone entirely.

But there are two good reasons for continuing to seek ways to cut estate taxes. First, the tax will be with us for several more years. Butt even more important, the repeal of the tax lasts only a year, unless Congress acts to make it permanent. As the 2001 tax cut provisions were written, a "sunset" provision wipes out the changes as of January 1, 2011. At that point, the old estate tax law returns, with a maximum 55 percent tax rate and an exemption of just $1 million. Optimists are betting that politicians will eventually opt to make the law permanent, but many pragmatists are planning fin" the possibility that the demise of estate taxes will be only temporary.

We asked experts to provide tips on reducing exposure to estate taxes. Recommendations are not ranked in any order. It is also best to consult with a professional for more details and actual tax consequences.

1. Life-insurance trust. "This trust allows money, or an existing life insurance policy, that is a part of one's assets to fund a trust that can he excluded from one's assets upon death," explains Wayne Thomann, a partner at Kemper CPA Group in Vincennes. However, the donor has to live at least three years beyond the timing of funding if an existing life-insurance policy is used to fund the trust. "Significant dollars can be funded for premiums and moved outside one's estate," Thomman says.

2. Charitable annuity. This is a gift to a charity. "The charity, in turn, guarantees to provide an annuity for the life of a beneficiary, or a fixed term," Thomann says. The remainder of the unused asset becomes an asset of the charity. The benefits: income-tax deduction for a piece of the contribution, assets are removed from the estate, and cash flow.

3. Annual exclusion gifts. According to Lisa Stone, a partner at Ice Miller in Indianapolis, this exclusion "is an amount that you can transfer free of any gift or other transfer tax." During one's lifetime, $11,000 can be transferred to any number of individuals, year after year. "If you have lots of children and grandchildren, then you can give $11,000 per child and grandchild, year in and...