Are there ways to avoid federal estate taxes?

Yes, although there are fewer ways than many people think, or hope, there are. Here are some of the most popular:

• Tax-free gifts. You can give up to $12,000 per calendar year per recipient without paying gift tax. You can also pay someone's tuition or medical bills, or give to a charity, without paying gift tax on the amount. This reduces the size of your estate and the eventual estate tax bill.
  
  
• An AB trust, where spouses leave their property in trust for their children, but give the surviving spouse the right to use it for life. This keeps the second spouse's taxable estate half the size it would be if the property were left entirely to the surviving spouse.
  
  
• A "QTIP" trust, which enables couples to postpone estate taxes until the second spouse dies.
  
  
• Charitable trusts, which involve making a sizable gift to a tax-exempt charity.
  
  
• Life insurance trusts, which let you take the value of life insurance proceeds out of your estate.

Can't I just give all my property away before I die and avoid estate taxes?

No. The government long anticipated this one. If you give away more than $12,000 per year to any one person or noncharitable institution, you are assessed federal "gift tax," which applies at the same rate as the estate tax.

Making gifts of $12,000 or less, however, can yield substantial estate tax savings if you keep at it for several years. Some other kinds of gifts are exempt from the gift/estate tax as well. You can give an unlimited amount of property to your spouse, unless your spouse is not a U.S. citizen, in which case you can give away up to $125,000 (2007 figure) per year free of gift tax. Any property given to a tax-exempt charity avoids federal gift taxes. And money spent directly for someone's medical bills or school tuition is exempt as well.