The federal estate tax expired at the end of 2009, and believe it or not, the lack of an estate tax is creating a serious problem for many people who have not revised their wills in a while.

The federal estate tax applied in 2009 to estates of more than $3.5 million. It is slated to come back in 2011, and apply to estates of more than $1 million. Most people expected that Congress would “fix” the estate tax before it expired, and there would be a new exemption amount, such as $3.5 million, for 2010 and beyond.

However, Congress has done nothing so far – at least as of when this newsletter was written – and while it might seem great that there is no estate tax yet in 2010, it’s actually a problem in many cases.

Here’s why: Many older wills were set up to avoid taxes by giving children an amount of property equal to the exemption amount, and having the rest go to the surviving spouse. For instance, if the exemption amount were $1 million, then $1 million would go to the children (or to a trust for the children), and the rest would go to the surviving spouse (or a trust for the spouse).

But in 2010, there’s no exemption amount. So in some cases, the result is that the entire estate goes to the children, and nothing goes to the surviving spouse.

Now it’s possible that Congress will fix this by retroactively reinstating the estate tax for 2010. But it’s also possible that it won’t – or that even if it does, the changes it makes won’t apply to the particular language in your will. So if you have a will with such a provision, it would be wise to review it now so you don’t wind up accidentally disinheriting your spouse.

Similarly, if you have a pre-nuptial or post-nuptial agreement with provisions tied to the federal estate tax (such as that one spouse must leave the other a fraction of his or her federal estate), then you might want to have that agreement reviewed as well.

There are other problems, too. For instance, while the federal estate tax has disappeared in 2010, so in many cases has the “step-up” in basis.

Here’s an example of how this could affect you: Suppose you purchased shares of stock many years ago for $100,000, and they’re now worth $300,000. If you died in 2009, your heirs would get those shares with a “stepped-up” basis of $300,000, so if they sold them right away, they wouldn’t owe any capital gains tax.

But if you died in 2010, your heirs might get those shares with a basis of only $100,000, so if they sold them right away, they would owe tax on a $200,000 capital gain.

This problem won’t affect everyone, because a spouse can still get a stepped-up basis on $3 million worth of assets in certain circumstances, and it’s possible to “assign” a stepped-up basis to certain other assets worth $1.3 million.

However, it might be wise to reconsider what property goes where in the event that Congress does nothing. If you’re planning to leave assets to charity, for instance, you might want to give assets that have a low basis rather than a high basis, or that have a basis that’s hard to determine.

And of course, the fact that the estate tax may come back next year with a threshold of only $1 million means that if you haven’t adjusted your estate planning accordingly, now is the time to do so. Unless Congress changes the $1 million threshold, the effect will be dramatic. In 2009, when the threshold was $3.5 million, some 5,500 estates were subject to the federal estate tax. But if the figure drops to $1 million in 2011, more than 44,000 estates are likely to end up paying the federal tax.