The estate tax was repealed effective January 1, 2010.  As it stands now, no federal estate tax will be imposed on decedents dying in 2010.  Congress is aware of the situation, but has not focused too much attention on the problem.  This may be good news to the heirs, but it could have adverse effects on the surviving spouse.

Basic estate tax planning for married couples has always started with setting up a trust to use the allowable estate tax exemption on the death of the first spouse to pass assets without any estate tax.  The wording in the will generally states that assets should be transferred to the trust until an estate tax would be due.  For 2009, a maximum of $3.5 million would pass to the trust with the remainder going to the surviving spouse.  Since there is no federal estate tax in 2010, all of the assets owned by the deceased spouse would transfer to the trust.  The surviving spouse would have the right to the income while he/she is alive, but would be restricted in his/her ability to access principal.

The estate tax exemption is scheduled to return to $1,000,000 in 2011.  Most estate tax planners believe that the estate tax will be reinstated retroactively to January 1, but there is no guarantee.  To be on the safe side, you should contact your estate planner.