In the US and UK, people have to pay inheritance tax, and this is recovered from the person's financial estate after his death. There is a minimum threshold which is not taxed and it is $3.5 million in the US and 325,000 pounds in the UK. But if you consider the property prices today the minimum thresholds do not amount too much and the inheritance tax after these minimum limits is prohibitive. UK has a flat rate of 45% and the US charges 40% on the amount above the minimum limit. This can cause a big dent in the inheritance and the heirs will not get a share which they expected.
There are different ways to reduce Inheritance Tax and it just requires careful planning. One of the ways is to start passing assets to your children every year, starting now. There is a limit within which you can transfer sums to your children tax free. In the US each parent can gift $13000 every year to their children and in UK the limit is 3,000 pounds. As you transfer amounts like these, year after year, and the total value of your estate will be reduced and also you would have already transferred a substantial amount to your children without them having to pay any tax. You can set up jointly, an account in your child's name but have the controlling authority over withdrawals so that the amounts are not misused. You can also pay for your children's higher education by paying the educational institution directly, and this amount will be totally free of gift tax.
Reduce Inheritance tax by balancing your assets with that of your spouse. The inheritance tax is charged on the financial estate held individually. So if you have more assets than your spouse you can transfer some, so that it is more balanced and in the event of death of either the inheritance tax would be the same, if it exceeds the minimum limit.
One of the best ways to reduce inheritance tax is to establish a trust based on a life insurance policy taken in your name. Make your children the beneficiaries and the amount which is deposited in the trust after your death will not be taken as your asset. The full amount will be divided among the beneficiaries, without any inheritance tax being charged.
You can also reduce inheritance tax by investing in certain stocks which are listed in alternative investment market and these will not be charged inheritance tax if held for two years or more.