Because the tax code for estate and gift taxes favors married couples, those who are divorced or widowed or have never married have fewer estate planning tools at their disposal. To effectively reduce estate and gift taxes, a single person must often employ more aggressive techniques that may be unnecessary for a married couple who can transfer unlimited assets to each other without paying such taxes. For example, a married woman upon death may transfer all of her $2 million estate to her husband tax-free, while a single woman’s $2 million estate would pay about $600,000 in taxes upon being transferred to her beneficiaries.

One of the most effective ways to reduce these taxes-especially for singles-is to create an irrevocable life insurance trust (ILIT). An ILIT owns a life insurance policy on the insured single, who gifts just enough money (tax free) to the trust every year to pay the insurance premium. Upon death, the life insurance proceeds could easily replace the amount paid for estate and gift taxes.