The new tax law, which temporarily raises the estate and gift tax exemptions to $5 million, has many important implications. Almost everyone should have their estate plan reviewed in light of this significant change.

Here are just a few of the other important consequences:

•  Many wills that were drafted years ago need to be revised right away. Frequently, these wills were set up to avoid taxes by giving children an amount of property equal to the estate tax exemption, and having the rest go to the surviving spouse. For instance, if the exemption amount were $600,000, then $600,000 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 2011 and 2012, the exemption amount has been dramatically increased to $5 million. So in some cases, the result will be that the entire estate goes to the children, and little or nothing goes to the surviving spouse.

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.

• Unmarried couples might want to make gifts to each other in 2011 and 2012.

In general, a person can make unlimited transfers to a spouse without being subject to gift or estate taxes. But the same is not true of unmarried couples; if one partner dies and leaves everything to the other partner, the federal estate tax will apply. So a wealthy partner might want to make transfers to a less wealthy partner before the end of 2012.

A few states allow gay couples to get married under state law, but these couples might want to consider making gifts as well, because they’re not considered “married” for purposes of the federal estate tax.

• Many power of attorney documents allow an agent to make large gifts. This was often a good idea back when the estate tax exemption was much smaller, because it allowed the agent to use lifetime gifts to avoid taxes. But now that the exemption is $5 million, these gifts might not be as necessary, and you might want to reconsider allowing your agent to have this significant power, at least for now.
• If you have a very large life insurance policy, this might be a good time to put it into a life insurance trust. These trusts can be very effective at saving taxes, but in the past many people with large-value policies couldn’t transfer them to a trust without incurring gift-tax problems. With the $5 million exemption, this might now be much less of an issue.
•  If you’ve set up a grantor trust in the past, you might want to review it. One benefit of a grantor trust is that the trust income can benefit your children or grandchildren, but you can pay the income taxes on it. This effectively reduces your estate tax, because the money for the income tax comes out of your eventual estate. But with the estate tax exemption at $5 million, saving estate taxes might not be such a priority, and you might want to reconsider paying the taxes yourself. For example, if a trust protector has the power to change the income tax treatment of the trust, you could ask that the treatment be changed for now.
•  A number of people recently converted a traditional IRA to a Roth IRA, and paid the resulting income tax upfront, in order to reduce their taxable estate. Again, with a $5 million exemption, this might not be such a priority, and you might consider undoing the conversion and saving the taxes. (However, before undoing a conversion, please keep in mind that the $5 million exemption only lasts for sure through 2012. After that, it’s slated to return to $1 million. Congress might well change that figure – but there’s no guarantee.)
•  The very wealthy might want to consider putting more than $5 million into a trust. They would immediately have to pay a 35% gift tax on any amount over $5 million. On the other hand, that might be preferable to keeping those assets and having them be subject to a possible 55% estate tax when they die.