Roger Peugeot jokes that a fitting way for him to die would be while hugging the toilet in his basement during a tornado -- preferably in 2010. Peugeot, better known in Overland Park, Kansas, as "Roger the Plumber," owns the company that his father, Arley, founded in 1950. At age 7, Peugeot was his father's apprentice, eventually joining him full-time after graduating from high school. Ten years later, Arley died during a house call, but luckily, he had hashed out a succession plan a year and a half earlier: He gave his truck and tools to his son and helped him train two new employees. As soon as he died, Roger would inherit the business.

Things are a lot more complicated for Peugeot today. His father's once-humble plumbing concern now boasts 25 employees, 15 trucks, and more than $5 million in annual sales. Peugeot, 60, says estate taxes have become a big worry. While there is scant statistical evidence that many small businesses are affected by the levy, the so-called "death tax" is nonetheless considered by opponents to be a kind of bogeyman preying on entrepreneurs and family farms. Politics hasn't helped matters, either. In 2001, Congress enacted an eventual phaseout of the levy; in 2010, it will be repealed altogether. The problem is, the tax is set to return in 2011 unless Congress votes to make the repeal permanent -- something unlikely to happen in an election year and even less likely should Republicans lose the White House or Congress. In other words, there's no telling what will happen. "We don't know what the prospect for repeal is," notes Steve Aikers, managing director of wealth-management firm Bessemer Trust's Dallas office. As a result, he adds, the onus is on business owners to "do enough planning so they won't have a problem."

Peugeot, for one, has done precisely that. Rather than driving himself crazy with what-ifs (or praying for a timely demise in 2010), he's taken matters into his own hands. This election season, as politicians and pundits debate the issue, the master plumber will rest a little easier thanks to smart, and legal, estate-planning strategies.

Make the Most of Your Marital Status

There's at least one nice thing to say about the estate tax: You're entitled to an exemption. In 2004 and 2005, the exemption is $1.5 million. (The amount jumps to $2 million between 2006 and 2008 and hits $3.5 million in 2009 before the tax is repealed for one year in 2010.) Any amount exceeding $1.5 million is subject to a federal estate tax as high as 48%. Fortunately for married couples, the tax only kicks in upon the death of the spouse. With some planning, couples can qualify for two $1.5 million exemptions instead of just one.

To that end, in 1997, Peugeot and his wife, Diane, 55, each set up living trusts funded by personal assets like the plumbing business, bank accounts, and real estate. (There's no limit to how much they can contribute to the trusts.) Things get a little macabre here, so bear with us. Let's say Roger were to pass away this year. In that case, his trust is designed to split into two subtrusts: a bypass trust and a marital trust. Diane would be the primary beneficiary of the bypass trust, which she could use for health, education, maintenance, and support needs. She'd also be the sole beneficiary of the marital trust.

Now, let's say Diane's revocable trust is worth $1 million and Roger's $2 million. Upon Roger's death, $1.5 million of his trust would go to his bypass trust (and remain free from estate taxes), while the remaining $500,000 would go to his marital trust. Upon Diane's death, the $500,000 in the marital trust would become part of her estate value, bringing it to the $1.5 million exemption. Meanwhile, Roger's $1.5 million bypass trust would go to the couple's four children, free of federal estate taxes. It's a somewhat complicated way to get to a simple end: The Peugeot estate will have fully utilized the $3 million combined exemption available, and the children may not have to pay any estate tax.

Create an Irrevocable Life Insurance Trust

With the help of his estate-planning attorney, Kyle Krull, Peugeot created another safety net just in case his estate exceeds the estate-tax exemption. He established an irrevocable trust that's separate from his estate and exempt from estate tax. (As with the bypass trust, this irrevocable trust cannot be altered once it's established.) The trust is funded by a survivorship life insurance policy that will deliver to the beneficiaries -- Peugeot's children -- upon the death of both Peugeot and his wife, providing their four children with liquid funds to help pay off any potential estate tax owed. Because the children are the trust's beneficiaries, Roger and Diane can each put $11,000 a year per child into the insurance policy tax-free, thanks to the gift-tax exemption. That translates into a maximum of $88,000 total per year. Since 1997, Peugeot has stashed away some $200,000 into the life insurance trust. He figures his kids can't lose: Even if his estate winds up being exempt, he says, they'll just be a lot richer.

Couple a Buy/Sell Agreement With a Life Insurance Policy

Family-business owners like Peugeot aren't the only ones who need to worry about estate taxes. When Helga Grayson, now 52, quit her job to found Thinknicity, a San Francisco-based professional recruiting and placement firm, with two partners in 1997, she immediately devised a succession plan that took estate taxes into account. Grayson, Thinknicity's chief financial officer and a mother of two, purchased $1 million term life insurance policies on each of her partners -- Dyana King, 38, and Cindy Reuter, 43. They each did the same. The three women also signed a buy/sell agreement stipulating that if one member of the limited liability corporation dies, the company would be appraised, and the remaining two partners would use the life insurance proceeds to purchase the shares from the deceased partner's family -- thereby retaining control of the company, as well as helping heirs pay off any estate tax incurred.

Transfer Some of Your Company's Value Out of Your Estate -- Without Losing Control

Rabih Ballout, 40, never really worried about estate taxes until he got married and had two children. "I started to wonder what's going to happen to them when I kiss the world adios," he says. Ballout is the sole owner of two successful businesses: Gel Tech, a year-old ice-cream equipment distributor in Las Vegas that generates about $500,000; and Oscartielle, a San Francisco-based display-case maker that Ballout expects to post sales of $10 million in 2004. When Ballout approached his attorney about creating an estate plan recently, he got some shocking news: Since his estate is valued at roughly $18.5 million (a third of which consists of the businesses), he'd face a tax bill of roughly $6 million if he were to bid adios today. Ballout's first course of action was to increase his life insurance policy substantially to create a liquid asset to help his family pay off the tax. He also plans to reduce the value of his estate by giving restricted, nonvoting shares of his companies to his two children. By taking advantage of the gift-tax exemption, he can start giving his children $11,000 each every year tax-free.

That's not the only way to transfer shares without losing control. A family limited partnership allows you to transfer as much as 99% of your companies' nonvoting shares to children while retaining control over business operations. A word of warning: The IRS has been closely scrutinizing FLPs lately, cracking down on families suspected of using them solely to avoid taxes. They also carry a hefty price tag, costing anywhere from $7,500 to $20,000 to create. A safer, though not necessarily cheaper, bet might be to use the same strategy within a nonfamily entity, such as a limited partnership or a limited liability corporation. All of these partnerships have one added advantage: Because nonvoting shares are generally worth less than voting ones, such arrangements can allow you to transfer more ownership interest without incurring gift tax, says Jeff Saccacio, West Coast director of trusts and estate services for Citigroup.

Don't Wait Too Long

Back in Kansas, Peugeot is still busy making succession plans. When he first met with an attorney a few years back, he wasn't sure if any of his children would want to inherit the business. Today, however, one of his sons is a master plumber and full-time employee. His other son is being groomed as a manager and hopes someday to become CEO. Peugeot is working with his attorney to establish a buy/sell agreement with him. Ideally, the son would take out a life insurance policy on the father and purchase the company from his wife. The problem is, now that Peugeot is 60, buying that insurance is next to impossible. "That's my one regret," says Peugeot. Still, he's glad he's taken what measures he can. He may not love the estate tax, but at least he's thankful for the myriad legal ways to reduce its bite. "Now I know the business will continue," he says.