Good news! There is no federal estate tax in 2010!

Bad News! There are complicated new carryover basis rules on current estates and there will be much higher federal estate taxes on much smaller estates starting in 2011!

At least that’s the current law that’s on the books. Obviously, there is significant debate both in and out of Congress about what to do about this odd state of affairs. The problem has its roots in a 2001 law that attempted to do away with the federal estate tax, but was only partly successful in doing so, and left final repeal for another day. While it’s generally impossible to ever know what direction Congress will take, here are some of the more likely options of what they might do:  

• Make the temporary tax repeal permanent

• Reinstate the 2009 estate tax rules for 2010 going forward

• Pass new estate tax rules

• Do nothing 

As you might guess, each of these possibilities has a different effect on your estate plan, especially if you have a larger, more complicated estate. In fact, the current law on the books today has a new "carryover basis" rule that can cause problems with even modest estates when heirs try to sell assets they inherit.

Until Congress acts, if it does, you need to review your plan to make sure that these changes don’t cause major problems for your estate. And, if Congress does take action, you will most likely need to adjust your plan to fit whatever new rules are put in place. In addition, for individuals with larger estates who are comfortable with aggressive tax planning concepts, the current uncertainty may provide some unique short term planning opportunities.