On January 1, 2010, the federal estate tax was officially repealed. Historically the federal exemption from estate taxes and estate tax rate changed and will return in the Federal Estate Tax Schedule. This schedule poses a problem for estate planning attorneys and their clients. So what should be the plan in this year of no taxes and for the next few years?

Although the federal estate tax was officially repealed on January 1, it is possible that Congress will act to reinstate the tax in 2010 and make the new law retroactive to January 1. While some have speculated that making the tax retroactive will be unconstitutional, others disagree. And regardless, as the schedule shows the federal estate tax will return on January 1, 2011, and with only a $1,000,000 exemption.

Suffice it say that in these trying economic times, it is clear that the federal estate tax will be resurrected in some form or another as early as 2010 but definitely in 2011. As such, do not use this uncertainty as an excuse to put off making or updating your estate plan, because the consequences of not having an estate plan, or having an outdated estate plan, are simply too great. The beauty of estate planning is that estate plans can be made flexible enough to change as your life and the laws change.

The other thing to consider is where you live since currently 14 states and the District of Columbia collect an estate tax at the state level and seven states collect a state inheritance tax (Maryland and New Jersey are the only two states that collect both types of taxes):

Unfortunately, no one can predict the future and if and when someone will become mentally incapacitated or when someone will die. If you do not have a disability plan, then you and your property may end up in a court-supervised guardianship or conservatorship, and if you do not have an estate plan, then your loved ones will not know what you really wanted and your property may go to someone or somewhere that you would not have chosen had you taken the time to make a plan. Be smart – make an estate plan, or update your old and outdated estate plan, to protect you and your loved ones.