Credit shelter or bypass trusts allow clients to pass on the maximum amount of money to heirs tax-free.

Here’s how it works.

If a husband dies and passes his entire $7 million estate to his wife, there’s no estate tax because unlimited amounts can be passed between spouses. However, when the wife dies, she only has one lifetime estate tax exemption of $3.5 million to shelter assets passed to her heirs. The other $3.5 million would be taxed at 45%.

However, if the couple had split their assets equally, half could go into a bypass trust at the death of the first spouse, thus preserving the first spouse’s estate tax exemption of $3.5 million. The surviving spouse may be a trustee, but at her demise, each parent has preserved a $3.5 million exemption, so up to $7 million can pass to heirs tax-free. (This kind of trust can also protect the inheritance of children of a first marriage.)

But that was last year. With no estate tax, and a parent on his or her deathbed, what happens to a by-pass trusts in 2010?

Martin Shenkman, an estate planner in Paramus, N.J. suggests putting a floor and a ceiling on any estate plan that may have to go into effect this year. Since any estate tax law likely to apply retroactively would probably have an exclusion amount of either $3.5 million (the same as last year) or $1 million (what it’s supposed to revert to next year) per person, you could set up the trust so that it provides for a minimum of $500,000 and a maximum of $3.5 million. “In the interim put a floor and a cap on it to show people they can be proactive to address this,” he says.

Another issue to bear in mind is that the formula for bypass trusts is often to put the largest amount possible into the credit shelter trust without triggering estate tax.

This year, with no estate tax in effect, that could be the whole estate, bypassing the wife altogether. “If there is no estate tax and you put the maximum into a bypass trust, the kids get everything,” says Shenkman. “What does the client want? Maybe it’s $1 million to the kids and the rest to the wife.”

“You have to have a will in place and it’s got to function under either scenario” —estate tax or no estate tax], says Deborah Dunn, a trust and estates lawyer at Kirkland Ellis in Chicago. “You’ve got to come up with a number as to how much you want your kids to get and not base it on the tax consequences.”

Another option for families where everyone gets along, says Tom Abendroth, a partner at law firm Schiff Hardin, is to put everything into a marital trust, where the spouse can disclaim some or, if she has enough money of her own, all of the inherited amount. This option at least “puts off the decision until after the person dies,” says Abendroth. “If there’s no estate tax, they can disclaim everything with no taxes. If something has been enacted retroactively for 2010 then the spouse still would disclaim enough to restore the plan to exemption amount.”