Changes to the federal estate tax law may require you to make some adjustments to your estate plan.

Good news! It's time to revisit your estate plan to make sure that your heirs aren't unnecessarily burdened with taxes once you're gone. Have you been waiting for an excuse to delve into this cheery topic?

Recent happenings

In 2006, the federal estate tax exemption was bumped up from $1.5 million to $2 million. Assets in excess of the exemption amount are taxed at a whopping 45 percent. For 2009, the exemption will be bumped up to $3.5 million. More maddening is that the estate tax is set to be repealed entirely for 2010, but returns with a vengeance in 2011-with a meager $1 million exemption and a tax rate of 55 percent.

Richer than you think

Don't get fooled into thinking that you're not, and never will be, a multimillionaire. Chances are, your level of wealth is a lot higher than you think. Just start adding up the value of your real estate, cars, brokerage accounts, antique furniture, and the death benefits on your life insurance policies; you may find that your estate exceeds the $2 million, or even the $3.5 million, level. If it does, you need to do some planning.

Affect of exemption changes

Whenever the exemption amount changes, you'll have to re-check your net worth and review the structure of your estate-with your eyes on minimizing the tax burden, while leaving enough to care for your spouse once you're gone. If you don't know where to start, here are two topics to discuss with your attorney:

• The structure of your bypass trust. When you leave money to your spouse in a bypass trust, that amount is taxable under your estate, though it's not taxable when your spouse passes. But here's the thing-once you're gone, your spouse has limited access to the money in trust-so if you put too much in, your spouse may have a hard time paying the bills. Some wills incorporate language that funnels an amount equivalent to the prevailing federal exemption into the trust; with the newly increased exemption, though, this may not leave enough for your spouse.
• Your plan for the home. If you have an expensive home, consider whether it makes sense to leave the home to the kids and your liquid assets to your spouse, instead of the other way around. As long as the home is worth less than the exemption, you can pass it off to your kids tax-free, and then leave everything else to your spouse under the unlimited marital deduction. The home's cost basis will be stepped up when the kids inherit it, which will minimize the capital gains hit when they sell it.

Here's another bit of good news: Both presidential hopefuls are in favor of scaling back the estate tax, so you'll probably have to revisit this subject at least one more time come 2009.