The old adage by Benjamin Franklin is:  “In this world nothing is certain but death and taxes.”

Well, if die you must, die now… this year (2010) because if you do so you might escape some taxes.  Yahoo!  (Well, some of them at least.)  Seriously, 2010 gives heirs from an estate the best value of any in decades… with few exceptions, no federal estate taxes!

However, if you die in 2011, the reverse may be true… it is the possibly worst year to die in decades.

Here are the basics of what you need to know about the estate tax, and how to protect yourself and your heirs, at least until Congress takes action.:

• Both the estate tax and the generation-skipping transfer tax (on assets given to grandchildren) were repealed at the end of 2009.
• Both taxes are scheduled to return in 2011 at the unfavorable rates that applied 10 years earlier. The amount that is exempt from each of these taxes will then be $1 million, and the tax on the rest will be 55 percent.
• There is still a gift tax if you give away more than $1 million during your lifetime, but the tax rate has been reduced from 45 percent to 35 percent.
• Heirs will now have to use the original price paid for an asset when computing their tax liability, instead of the value upon the owner’s death. This change of “cost basis” could be very expensive, and difficult, for heirs. For example, if you inherit shares of Microsoft (MSFT) that your father accumulated over many years, you might be stuck hunting for all his transaction slips and adjusting for stock splits along the way (a potential nightmare). And when you sell any of the shares, you may owe capital gains tax on the appreciation. Each estate can exempt $1.3 million of gains from this carryover basis rule, as it’s called. Another $3 million exemption applies to assets inherited from a spouse.

You may need to consider reviewing your “basis” records… whether for real estate properties or for securities.  In the case of real estate do not forget to add capitalized expenditures to the basis such as improvements (but not repairs.)  You may also need to consider revising your current will(s) to be sure the changes don’t mess us the intent of your wishes.  If this could affect you or your loved ones, we suggest you consult your estate planner and/or personal tax advisor over these issues.