Estate planning while we sit, watch, and wait.

• Author: Schulman, Michael David

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As this column is being written, the country is still waiting to see how, if at all, Congress and President Obama will change the estate tax laws.

As the law stands now, for anyone who dies in 2009, $3.5 million of the estate will be exempt from tax. If death occurs in 2010 there is no estate tax whatsoever, while 2011 brings a return of the 2001 exemption of $1 million. In addition to the amount excluded from estate taxes, the law also alters the important issue of the beneficiary's basis in the inherited property. Simply put, for inheritors in 2009 and 2011, the basis of inherited property will be the fair market value of the property at the decedent's death, whereas property inherited in 2010 will retain the decedent's basis.

Despite the impending confusion, there are some steps tax practitioners can take in working with clients to ensure their estates are in the best position over the next few years.

Review the Client's Current Estate Plan

First, determine how the client's existing estate plan will be affected by the current state of affairs. Will the plan work as well in 2010 as it does in 2009? Are changes needed now, or can the client wait until the new legislation is passed?

If the client's will includes a provision for a spousal credit shelter trust, is the amount to be funded explicitly stated (e.g., $600,000, as is the case in some very old wills)? If so, it might be time to update the will.

Determine the Client's Taxable Estate

Determining the amount of the client's taxable estate will be the starting point in determining whether or not the client will be subject to the estate tax. A client with a taxable estate of $3.5 million will have no estate tax liability if she dies in 2009 (or 2010) but will have a liability if her death occurs in 2011.

With the drop in portfolio values, some clients with formerly taxable estates will no longer be subject to estate taxes in 2009 and possibly in 2011 as well.

Determine the Basis of the Client's Assets

If the client makes gifts, the client's basis in the assets gifted will be the gift recipient's basis in the assets. (If the asset has lost value, the basis to the recipient is the lower of the client's basis and the fair market value of the asset on the date of the gift. This rule is important for clients with portfolios that have lost value.)

If the client dies in 2010 and the law has not changed, the beneficiary's basis in the inherited property will be the...