Yes you could contribute property to an irrevocable trust for their benefit and it would avoid being included in your estate for estate tax purposes. However, any property you contribute to the trust would be considered a gift to the beneficiaries of the trust and if the gifts exceed $12,000 per beneficiary per year then you will have to file a gift tax return. You will not have to actually pay gift taxes until your total lifetime excess gifts (gifts in excess of $12,000 per beneficiary per year) exceed $1,000,000. Upon your death these excess gifts are added back to your estate for purposes of determining whether federal estate taxes are due. In 2008, $2,000,000 is exempt from federal estate taxes and $3,500,000 is exempt in 2009.
One type of trust that some taxpayers use to increase the amount of assets that their heirs inherit tax-free is an irrevocable life insurance trust. This type of trust would purchase a life insurance policy on your life and you would make contributions to the trust each year to pay for the premiums. These contributions are treated as gifts to the beneficiaries of the trust and certain procedures must be followed to ensure compliance with gifting rules. Upon your death the life insurance is not considered part of your estate and the life insurance proceeds are income tax free.