Leaving an inheritance for your family is a great way to ensure they will be financially secure after you pass away. If, however, your net worth is high and your estate will owe taxes, your family’s inheritance may be affected.

In 2011, the federal estate tax rate is expected to be 55% for all assets above the federal exemption level. For 2010, there is no exemption level, but in 2011 that level is expected to return to a previous low of one million dollars. If your estate is worth close to this expected limit, you should work with your attorney on ways to lower your estate tax burden.

One way to leave an inheritance for your loved ones while reducing estate taxes is through the use of Irrevocable Trusts. For your spouse, an A/B Trust is an excellent option. This is a Trust that allows you and your spouse to split your taxable estate in half with each spouse holding a Trust. Upon the death of one spouse, the other will have control of the second Trust until his or her death.

For your children, you can use Irrevocable Trusts such as lifetime or pot trusts. These ensure your children will be taken care of while they are young and into their adulthood or until the Trust ends. Once you place items into an Irrevocable Trust, they do not belong to you and therefore are not eligible for estate taxes.

Another option is gifting assets to your family throughout your life. This is a great way to help your children and grandchildren while you are still alive. As of 2010, you can gift up to 13,000 to every family member each year. In your lifetime, you can gift up to one million dollars total. Once you go above your gift tax exemption level per person or for our life, you must pay taxes on those extra gifts.

Beyond gifting to your family or creating Trusts for their benefit after you pass away, you can also use advanced planning techniques such as Family Limited Liability Companies or Charitable Remainder Trusts to avoid estate taxes. Both of these provide you with income during your life, while keeping those assets out of your taxable estate. Similarly, gain on assets can be removed from your taxable estate through use of a sale to an Intentionally Defective Grantor Trust or transfer to a Zeroed Out Grantor Retained Annuity Trust (commonly called a Walton GRAT).