Giving gifts to family and charity while you're alive can be a boon to them - and your estate.

Estate planning isn't just about how you want your assets distributed after you die. It's about deciding how much you want to give away while you're still alive. If you plan carefully - so you don't outlive your assets - giving allows you to reduce your taxable estate and provide advance help to your beneficiaries.

There are two easy ways to give gifts without incurring the gift tax:

You may pay an unlimited amount in medical or educational expenses for another person, if you give the money directly to the institutions where the expenses were incurred.

You may give up to $13,000 a year in cash or assets to as many people as you like.

Anytime you give more than $13,000 annually to any one person you must file a gift-tax return and the excess amount will be applied toward your lifetime gift-tax exclusion of $1 million.

If at any point your gifts exceed that exclusion, you will have to pay gift tax on the excess amount. There is some good news in that regard. The top tax rate on gifts is gradually declining and will fall to 35 percent by 2010.

Keep in mind, too, that gifts you give within three years of your death that exceed the lifetime gift-tax exclusion will reduce the amount of money you may leave to your heirs free of federal estate taxes, according to certified public accountant P. Jeffrey Christakos of First Union Securities in Westfield, N.J. For example, if you give away $100,000 more than your lifetime exclusion within three years of your death, your estate-tax exemption will be reduced by $100,000.

If you want to invest in a 529 college savings plan for a beneficiary, contributions are treated as gifts. You may put in as much as $65,000 in one year ($130,000 with your spouse), but that contribution will be treated as if it were being made in $13,000 installments over five years.

That means you can't give any more money to that beneficiary tax-free during that five-year period. Should you die before the five years are up, part of the money you gave will be included in your taxable estate, specifically the $65,000 minus $13,000 for each year you were alive.

The tax consequence of making large gifts can get complicated. So if you have a large estate, consult with your financial or tax planner to see how much giving you can do without triggering a big tax bill.

Charitable donations are another way to reduce your estate. By investing in charitable gift funds and community foundations, those donations can stretch beyond your death.

Charitable gift funds, which are offered by Fidelity, Vanguard and others, permit you to make a tax-deductible donation, grow your investment tax-free, and then direct a contribution - in your name - to nonprofits of your choosing whenever you like.

Community foundations are regionally based charities that take donations of as little as $5,000 in cash, stock or property. The foundations invest that money, pool the gains, and allocate grants, usually to local nonprofits. In most cases, you may either have the foundation give money to organizations you choose or ask the foundation to locate a worthy recipient for a cause you like.

You also can set up what's known as a charitable lead trust, from which a charity receives the income and your heirs the principal; or a charitable remainder trust, in which your heirs get the income and the charity gets the principal.