Learn the rules that can cut your estate taxes

First, there's an annual increase in the amount of property that you can leave your heirs free of estate tax. For many years, up to $600,000 could be transferred tax-free. In 2000, this allowance is $675,000 per estate, and it will gradually increase to $1 million by 2006.

For many years, individuals have been able to make annual gifts of up to $10,000 per recipient without triggering gift tax. This amount is now indexed to the cost of living and, over the years, the tax-free gift allowance should gradually rise. Unfortunately, because the annual increase is calculated and then rounded down to the nearest $1,000, it may be several years before you actually see a change in the $10,000 figure.

Indexing for inflation applies to the $1 million exemption from the generation-skipping tax and the $750,000 special-use valuation.

If you own a family business or family farm, you may be able to shelter from estate taxes up to $1.3 million of business or farm value. This $1.3 million exclusion does not increase each year until 2006 as the regular exclusion does. As you might expect, this tax break comes with many technical requirements, but, if you qualify, it could mean the difference between selling your business and passing it on to the next generation.

You no longer have to pay a penalty tax on "excess" retirement plan accumulations, which was due in addition to the regular estate tax. This provision was repealed a few years ago, along with a comparable penalty tax on "excess" distributions from retirement plans.

To benefit, you have to review your estate documents

If there's a downside to utilizing these estate tax breaks, it's that most estate plans and documents need to be reviewed on a regular basis. For example:

It may be necessary to revise your will or trust in order to take full advantage of the gradual increases in the estate tax exclusion. Improper wording in documents could mean you'll pay higher estate taxes than necessary simply through oversight.

You may want to adjust your life insurance coverage. Review your insurance coverage with your agent to determine that you have the appropriate life insurance for your estate needs.

Since only certain ownership arrangements will qualify for the new $1.3 million exemption, you might want to make changes in your business structure.