Everybody has heard and readabout estate-tax repeal and the possible estate-tax changes brewing for next year. But the unbounded uncertainty warrants another little fireside chat. The following discussion is based on questions that will be posed to a panel of estate-tax experts at a conference in late September.

Q. Should your clients revise their wills now?

A: Most clients never update their wills frequently enough, so updates are generally long overdue. So let's say they do update their will, should it have separate provisions for 2010 and 2011?

Absolutely. Estate-tax repeal is real for 2010, and documents need to address the basis step-up and other issues. Many states have enacted laws to fill the gap in the formula clauses that don't work because of repeal. For example, your state law may say to use the 2009 exemption amount to determine how much should go into a bypass trust. But for many clients that is just a rough fix and isn't what they intended. So for most, even that decision should be revisited.

The unknowns of 2011 should be dealt with as well. As we go to press, the law for 2011 is a $1 million exemption and 55% rate. Many advisors believe that a $3.5 million exclusion and 45% rate might become law. Both scenarios, as well as the possibility of an exemption that inflation-adjusts or changes over time, should be addressed.

There is no standard one-size-fits-all approach that works. Every plan needs to be tailored to the client's specific scenario. Many attorneys draft for disclaimers to provide flexibility in the face of uncertainty. Too often, surviving spouses never exercise the disclaimer. If using formula clauses (i.e., funding a bypass trust with the largest amount that won't create a federal estate tax), address the ongoing uncertainty of the estate tax by providing caps and floors for the formulas (no more than $x and no less than $y). Include qualitative statements about the client's intent, so that if a court has to interpret the bequest it can.

Q: Should your clients make big gifts this year?

A: Taxable gifts (above the $13,000 annual exclusion and $1 million lifetime exclusion) are only taxed at a bargain rate of 35% this year. Before committing, though, confirm whether there is a state gift tax. The bargain gift rate could be huge, but too many uncertainties remain that make it hard to determine if gifts should be made. What are the pros and cons of making a gift that will require paying a gift tax out-of-pocket?

If a client is elderly or ill, incurring a gift tax might prove a tax savings, effectively permitting him or her to pay tax at 35% instead of 55%. But a host of questions affect the benefits of this type of planning. Does your client expect to survive for at least three years? If the client dies in less than three years, the estate will receive a credit for the gift tax that would have been paid had the gift been made in 2011. That would mean that the tax paid in 2010 might be 35%, but the estate would get a 55% credit.

Q: Should gifts be made to grandchildren or to grandchildren's trusts?

A: This year, gifts to grandchildren (or other "skip persons") won't be subject to a generation-skipping transfer (GST) tax since none exists in 2010. The issues with making gifts to generation-skipping trusts for grandchildren this year is much more uncertain. The GST tax is scheduled to be back in effect in 2011. So what will be the transfer-tax consequences when distributions are eventually made to the grandchildren in 2011 and later? Most experts worry that these distributions will be subject to GST tax.

What's a planner to do? If gifts are going to be made to a GST exempt trust, perhaps the trust should include sub-trusts, one GST exempt and one not. A formula clause would allocate the amount that is not GST exempt (if that is what the law ultimately is clarified to provide) to a non-GST exempt sub-trust and what is GST exempt to a GST exempt sub-trust. The trust and the allocation clauses should make the client's intent clear.

Whatever is done concerning GST allocation in January 2011, all 2010 potential GST transfers should be evaluated to determine if a late allocation of GST exemption should be made. That would entail allocating GST to the transfer in January based on the valuation of the assets at that time. Even this may not be simple. If the asset was valued in 2010, when discounts were permitted, and if the law eliminates discounts or restricts them effective Jan. 1, 2011, how will that affect the valuation and amount of GST exemption necessary to allocate?