Estate Tax in Limbo

Regardless of whether the estate tax is repealed, most tax experts agree that the $1 million threshold will be changed, given the political uprising likely to take place if more people are pinched. But while no one is convinced the exclusion will slip to $1 million, you just never know.

That makes estate planning difficult, says Richard Coppa, president and founder of Wealth Health, a financial planning firm in Roseland, N.J. If we knew for sure that the exclusion was plummeting in 2011, advisers would be recommending that their clients start giving away money now so that their estates are diminished by then.

Really, all you can do is wait.

If the Republicans get their way, though, the exclusion will jump to $5 million, and then the majority of us can forget this estate tax nonsense.

But again, no one knows.

And there's one more planning glitch: Though federal estate tax exclusions may increase, your state estate tax exclusions won't necessarily follow, reminds Bob Scharin, editor of Warren, Gorham & Lamont/RIA's Practical Tax Strategies, a monthly journal written for tax professionals. So pay attention to your state's rules during this monotonous debate.

The Ethics Questions

Of course, there's always the ethical question of whether there should be an estate tax in the first place, says Bill Fleming, director of personal financial services at PricewaterhouseCoopers in Hartford, Conn.

Clearly, the uber-rich will argue that their hard-earned money is being double-taxed. And some of it may be. But there's definitely a fair amount of appreciation that's been brewing and passed on over the years and has never seen a tax hit.

And in actuality, not that many people will be affected by the estate tax before 2011. According to a study by the Joint Committee on Taxation, 7,500 people who die in 2009 will have an estate tax liability. That means they'll have an estate that's greater than the $3.5 million exclusion scheduled for that year. Arguably, not a ton of people.