What is going on with the federal estate tax law?

I heard that someone kept their loved one alive through January 2 on machines just to take advantage that there is no estate tax law this year. Unfortunately, there also is no step-up in basis at death and so that family could be facing a very high capital gains tax. This was not a concern when there was an estate tax because there also was a step-up in basis at the time of death.

However, Congress is not done with confusing us all. Legislation is being contemplated that will reinstate the estate tax with a $3.5 million exclusion. It likely will be retroactive or at least an alternate option for those estates where someone died this year.

The reinstatement of the estate tax with the $3.5 million exclusion, as it was in 2009, could be good news because next year the estate tax comes back with an exclusion of only $1 million. The estate tax with the exclusion of at least $3.5 million has been one of the fairest "death taxes" that have been considered in the last decade. Until Congress finally sets a law in place, there are several planning options for those with an estate close to or over $1 million which need to be considered.