Effective January 1, 2010, there is no federal estate tax for decedents dying before January 1, 2011. It is likely, but not 100% guaranteed, that Congress will act to reinstate the federal estate tax during 2010. Meanwhile, the following points are noteworthy:

If Congress does not act, the federal estate tax will be reinstated as of January 1, 2011, with a maximum rate of 55% and with a $1,000,000 estate tax exemption; While there is no federal estate tax, decedents are subject to a complicated carryover basis formula, with specific dollar amounts of basis step up to be allocated among a decedent’s assets; If the federal estate tax is reinstated this year, it is uncertain whether this can be retroactive to January 1, 2010 because of constitutional issues; There is still a gift tax during 2010, with the tax rate being 35%, a reduction from last year’s 45% rate. This may present an opportunity for some to make gifts to the next generations at a lower gift tax rate. However, if there is reinstatement in 2010, this may bring the rate back to 45%; and It is possible that some formulas intended to optimally fund so-called “credit shelter” trusts may overfund such trusts to the detriment of the spousal trust for decedents dying during 2010 if the federal estate tax is not reinstated.