(FORTUNE Magazine) – DEATH AND TAXES are tough enough to stomach on their own. Unfortunately, at the end, they arrive together. With a little advance planning, however, you can mitigate at least one of these two certainties. Some basic steps can help you significantly reduce the tax burden on your estate, allowing more of your wealth to reach the ones you really want to have it. By keeping at bay the IRS, you'll be much better able to R.I.P. Although there was a lot of talk about tightening federal estate tax rules during this past summer's budget debate, ultimately few changes were made. Not surprisingly, these were directed at the very wealthiest strata. Top rates of 53% for estates worth $2.5 to $3 million and 55% for estates over $3 million were put into effect. This was not really a change but just the permanent ratification of rates that have been ''temporarily'' in place since 1984. The rates are retroactive to January 1 of this year (sound familiar?), but just a handful of estates will be affected. IRS numbers indicate that only a couple of thousand people a year leave behind estates that are subject to the top rate. For the rest of us, the rules of the game at the federal level remain, for the most part, the same. A few basic tactical moves are called for. You'd do well to get started now, even if you're not yet fabulously wealthy. Most everyone in a professional or managerial position is likely to accumulate enough wealth over his or her lifetime to warrant a strategy. And with federal death-tax rates starting at 37%, not counting state levies of varying sizes (see table), you don't want to miss out on any of what the financial advisers call ''planning opportunities'' -- that is, ways to elude the taxman. If your assets are worth $600,000 or less when you die, you will not be subject to federal estate taxes at all. But if you're likely to be over that cutoff, the goal is to reduce the size of your estate as much as possible, since everything above $600,000 is fair game for the feds. From the tax perspective, whoever dies with the fewest toys wins. Fortunately, the government provides some encouragement in this process by allowing you and your spouse each to give away as much as $10,000 per recipient every year, to as many lucky souls as you wish, tax-free. Why would you want to start showering your kids and grandkids with that kind of wealth? Because if you wait until after you're gone to do it, the IRS is going to take more than a third. Of course, most parents are disinclined simply to hand Junior a stack of bills and say, ''Party on!'' But there are trusts and other arrangements that can keep the money out of Junior's control until he's reached an appropriate age. All the appreciation that later occurs in that trust will also be free of estate tax. ''Lifetime giving,'' says Susan Porter Brachtl, a vice president with U.S. Trust, ''is often one of the missed opportunities.'' On the other hand, the income earned by a trust is taxed, and lawmakers saw fit this year to increase those rates substantially. Before 1993, trust income up to $3,750 was taxed at 15%, and the maximum rate of 31% kicked in for income over $11,250. Now (again, retroactive to January 1) the tax rate jumps to 28% on trust income of more than $1,500, and a new top rate of 39.6% applies beginning at only $7,500 of income. Your children, of course, are likely to be in a much lower tax bracket. Therefore, you may want to arrange for the trustee to pay out at least some of the earned income directly to them. If you set up a custodial account to receive the income, the cash will remain out of your children's reach until they hit 18 or 21, depending on the state. KEEP IN MIND that the new tax rates do not affect ''living trusts.'' These are the trusts into which people place their assets while still alive, so as to spare their heirs the inconvenience of probate. Since you retain control of the funds in a ''living trust,'' the income earned is treated as your own for tax purposes and taxed at your regular rate. Next tip: If some of your assets have run up steeply in value, hang on. Federal rules prescribe that when you depart this life, the cost basis of your assets -- such as the family homestead or that hot widget stock you bought in the 1970s -- gets marked up to present value. So if you continue to sit on the property until your number's up, all that appreciation will escape a capital gains levy. In the case of your house, this can be an argument against joint ownership, notes Brachtl of U.S. Trust. Say a couple paid $100,000 for their house, and it's now worth $500,000. If the husband dies, and the house is in his name, the wife inherits the place with a stepped-up tax cost basis of $500,000. If she turns around and sells, there'll be no capital gain. But if they hold joint title to the asset, only half -- the half belonging to the husband -- will be stepped up at his death, and she, upon selling, will have a $200,000 capital gain. (Although, if she's over 55, she won't necessarily be taxed on the full amount of that gain; she can use a one-time $125,000 capital gains tax exemption that the IRS allows on your principal residence.) Splitting up assets has another advantage for couples with large, taxable estates: It can help ensure that both husband and wife get a shot at their full $600,000 exemption. When, say, a husband dies, he can leave everything to his wife without any federal tax because there's an unlimited marital deduction. But then when she dies, the only thing left to shield the entire estate is her $600,000 exemption. It would be better if there were a way for the husband to use his exemption as well, so that as much as $1.2 million of the estate would be kept out of federal clutches. There is a way to achieve this. In his will, the husband can specify that, upon his death, a ''bypass trust'' is to be created and funded with $600,000 worth of his assets. Those assets go in tax-free. The bypass trust is usually designed to provide income to the surviving spouse, but it does not count as part of her estate. When she dies, the trust passes to the heirs, again without any estate tax. At the same time, another $600,000 chunk of the estate gets handed down tax-free using her exemption. The savings: at least $222,000 and as much as $330,000. For this to work, however, each spouse must own assets in his or her own name. That's because you don't know who is going to die first. If the husband owns everything and then the wife expires before he does, there will be no assets available to fund her bypass trust. Likewise, it's important not to own everything jointly. Property that's jointly owned will usually pass directly to the surviving spouse, again leaving nothing for the trust. Failure to attend to this issue is the most common mistake in estate planning, says Boston attorney Alexander Bove Jr. ''What good is it,'' he asks, ''if your lawyer drafts this elaborate trust, with all the latest provisions, and then it turns out that nothing gets into the trust because of the way you hold the assets?'' (In community property states, such as California and Texas, this is less of a problem, because while each spouse has a share of the assets, that share does not automatically go to the surviving spouse at death.) Edith and Ted Hamburger, 70 and 72 years old, respectively, have taken this advice to heart. The couple, who celebrated their 48th anniversary last March, have readied themselves to make full use of a bypass trust. They put their two Massachusetts homes -- one in Belmont, the other on Cape Cod -- in Edith's name only. Ted has sole title to a piece of industrial property in South Boston and to all the couple's stock. Dividing up the assets is ''an ongoing process,'' says Edith. But she expects to save much of her family's wealth from federal scrutiny. How much will taxes at the state level complicate your life? In general, not a lot. Most states exact only what's called a credit estate tax, which is not actually an additional tax at all but is just carved out of the money you owe the feds. Depending on the size of your estate, the IRS grants you a credit, up to a certain maximum, for the payment of state death taxes. The states then turn around and charge you that maximum. Your total payment of, say, 37% does not change. In the most popular retirement states, such as Florida, Nevada, and Arizona, the matter ends there. But in 22 states, the taxman wants an extra helping. Five of them -- including Massachusetts and New York -- hit you up with separate, and sometimes sizable, estate taxes. Seventeen others, such as Kentucky and Connecticut, impose inheritance taxes that can be even more exorbitant. What's more, being exempt from federal taxes does not get you off the hook in these states: All but two of the 22 can tax you even if your estate is under $600,000. And many of the states provide only a limited marital deduction. IN MASSACHUSETTS, for example, you enter the taxability club with only $300,001 to your name. Rates start out steep, at 5% for the first $50,000, and climb from there. Indeed, an estate that's not large enough for the federal government even to bother with can get hit with double-digit tax rates in Massachusetts: The state takes 11% of whatever's between the $400,000 and $600,000 mark. Fortunately for those who wish to spend their golden years on Cape Cod, the estate tax exemption is set to rise gradually so that it will match the federal level by 1996. That's good news for Edith and Ted Hamburger. Edith laments that many of their friends have moved away, specifically to avoid paying the Massachusetts death toll. ''It's a real whopper,'' she agrees, but she and Ted have no plans to move. Other states with death duties are even quicker on the draw, though they have kinder rates than Massachusetts. Oklahoma begins taxing above $175,000, New York at $109,000, and Ohio at just $25,000. All three offer a full marital deduction; Massachusetts will do so beginning next July. In states with an inheritance tax, the levy depends on who receives your largess. Gifts to your spouse, children, or parents are generally taxed the least; then there's another rate for your siblings, the spouses of your children, etc., and usually a third and still higher rate for everyone else. In Iowa, for instance, you can leave up to $50,000 tax-free to your daughter, with additional gifts taxed starting at 1%. Anything left to your brother will be immediately subject to a 5%-and-up tax. And assets you bequeath to your best buddy will be shrunk by 10% to 15%. WHILE inheritance taxes are all structured in a roughly similar way, differences across the states can be pretty significant. In Fortune's state- by-state breakdown of how much your daughter would actually pocket if you left her a million bucks, Kentucky sits near the bottom. Why is that? Well, start with an unusually low exemption of only $20,000. Then fork over 10% of everything over $500,000. After the IRS is paid, your daughter walks away with $795,650, a good $50,000 less than she'd get if you resided in Nebraska, another state with an inheritance tax. Most of the inheritance-tax states exempt everything left to a surviving spouse, though Delaware, Michigan, Pennsylvania, and Tennessee do not. In New Jersey and Montana your children and grandchildren are exempt as well. New Hampshire likes you to keep it in the family, offering an exemption to your parents and to your children and grandchildren and their spouses; all outsiders, however, incur a stiff 18% flat tax. But don't be deceived by the term inheritance tax. ''The reality is that the estate pays the inheritance tax, not the beneficiaries,'' says J. Michael Crum Jr., a partner with the Arthur Andersen accounting firm. The executor of your will generally pays the state bill out of the total estate before any distribution of the goodies begins. When you get called to make that final relocation to the sky, clearly you don't want to be caught in the wrong state. Choosing where to reside in your twilight years is one of the last and most important parts of your estate plan. The right moves can mean tens or even hundreds of thousands of dollars more for your heirs. ''You may not love your kids,'' Crum acknowledges, ''but you certainly love them more than the government!''

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Inheritance taxes vary, depending on who's inheriting. But don't be fooled by the term: The estate pays, not your heirs.

CHART: NOT AVAILABLE CREDIT: FORTUNE CHART/SOURCE: U.S. ADVISORY COMMISSION ON INTERGOVERNMENTAL RELATIONS CAPTION: What each state takes from a $1 million estate Most states impose only the credit estate tax. Michigan has done so for people who die after September 30 of this year.