How can I avoid estate taxes?

From FinancialPlanning

The simple answer is: odds are that you probably don't need to worry about federal estate tax, because it currently affects less than 2% of estates. Federal estate taxes are owed only if the taxable estate is valued at greater than $2,000,000, with that amount rising to $3,500,000 in 2009 and "unlimited" in 2010. The taxable estate is, in the simplest case, the net value of all your stuff (after subtracting out debt such as mortgages), minus what you leave to your spouse, minus what you leave to charity. With some relatively straightforward estate planning, a married couple is able to pass two times these maximum amounts without paying estate taxes, because that $2 million figure is per individual.

So the majority of households avoid estate tax without any tax planning, because their estates aren't large enough to be hit with tax. A much smaller number avoid them by passing assets in a manner that preserves a total tax-exempt estate of $4 million (2X the $2 million).

If those maximums aren't enough for you to avoid estate taxes...well, chances are you aren't reading these FAQs for information about estate planning. But if you are, an estate planning attorney can walk you through the planning alternatives.

State taxes could apply in some circumstances, but the answer is different in each state so is best addressed with an attorney licensed to practice in your state.

Didn't I read something about it all changing in 2011?
Yes...the 2% figure will certainly rise if the current estate tax scheme isn't changed. After 2010 the tax reverts to its old brackets so only $1 million will be exempt from estate tax. Because that level would subject such a large number of estates to the tax, many people believe that this law will be changed before 2010. Others believe that it may be left as-is because of the need to generate more tax revenue. Time will tell and in the meantime, estate-planning attorneys typically factor this in when drafting documents.