How to avoid the death tax
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Give out portions of your estate each year to your heirs. You can legally give up to $13,000 to each of your heirs per year without having to pay tax. If you give any one person more than $13,000 in a year, you must pay gift taxes on it. By doing this, you get to enjoy giving the gift and seeing what your heir does with it, which you miss out on if you wait until after your death to distribute money or property to your heirs.
Pay for higher education or medical expenses for your loved ones while you are still alive. The IRS does not tax these types of gifts regardless of the amount of the gift.
Invest in life insurance. Many life insurance policies will cover any estate
taxes so that your heirs will not have to pay them after you die. You can set up a trust fund as the beneficiary of the life insurance policy if you wish. Trust funds are not subject to estate tax, so if you do this the life insurance benefits won't be taxed as part of the estate after you die.
Set up trusts for your heirs. Put funds into trusts each year and bequeath the trust to your heirs upon your death rather than directly bequeathing money.
Bequeath money to charity. In addition to helping advance a favorite cause after your death, charitable contributions are a deductible expense. This means that when your executor files estate taxes, he can deduct the amount of your contributions from the total estate, which can help lower or even negate estate taxes.Source: ehow.com