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Can you reduce the taxes on your estate? Learn how

Face it - nobody likes to pay taxes. Neither will your heirs after you die. But while you likely won't be able to eliminate all taxes on your estate, there are perfectly legal ways to reduce them.

Below are some that may work to your benefit (and that of your heirs).

-- Private annuities. These involve selling assets to a younger descendant. He or she then makes a promise, albeit unsecured, to pay an annual sum to the seller for the duration of that person's lifetime. Thus, the asset is no longer a part of the seller's estate. However, any unspent payments received remain counted as a portion of the estate.

-- Marital transfers. As long as your spouse is an American citizen, you can give gifts to him or her during your lifetime or bequest some assets upon your death that allow your spouse to legally defer estate taxes. But this is merely a delaying tactic, as when your spouse dies, the estate is taxed for the lifetime transfers.

-- Lifetime gifts to descendants (children and/or grandchildren). You can annually gift $12,000 to your kids and grandkids without paying gift taxes. If you and your spouse both do so, the figure doubles to $24,000.

-- Uniform transfers to minors. If you have minor children, this is a handy way to set up a nest egg for them when they reach their majority. A custodian will oversee the gift for the minor until he or she turns 18.

-- Family limited partnerships. These are good ways to transfer ownership off family businesses to your heirs while also protecting those assets from creditors. They are both revocable and flexible, as well as taxing the income from the partnership at the lower rates applicable to children.

-- Irrevocable life insurance trusts. Small sums from the estate can be transferred to irrevocable life insurance trusts. These can significantly reduce the size of the estate that gets taxed and additionally create larger assets.

These are but a few of the strategies you can employ to reduce the estate tax burden for your heirs. An estate planning professional can explain other ways to best keep your money within the family after you pass on.

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