Lower your beneficiaries' estate taxes by not owning your life insurance policy.

First things first: You don't have to read this article unless your estate is likely to owe federal estate taxes at your death. Currently, the estate tax affects only people who die leaving a taxable estate of more than two million dollars.

For those estates that do owe taxes, whether or not life insurance proceeds are included in the taxable estate depends on who owns the policy when the insured person dies. If the deceased person owned the policy, the full amount of the proceeds are included in the federal taxable estate; if someone else owned the policy, the proceeds are not included.

It follows that if you want your life insurance proceeds to avoid federal estate tax, you may wish to transfer ownership of your life insurance policy to another person or entity. There are two ways to do it. You can transfer ownership of your policy to any other adult, including the policy beneficiary. Or, you can create an irrevocable life insurance trust, and transfer ownership to it. (But be aware that some group policies, which many people participate in through work, don't allow you to transfer ownership at all.)