A long time ago, I dropped my crystal ball, and it bounced down the office steps, shattering on the landing. Any prognostications in this article are guesses – educated guesses, but certainly not predictions.

Congress is making sausages, or laws, or whatever that messy thing is that they do in Washington. The reason it's so riveting is that every time they try to fix something, the dismal results are charged to the account of "we, the people."

Sometime early this Fall, Congress realized that the estate tax was due to expire on December 31, 2009. That was unthinkable. The expiration was mythical, not real, and the tax was never actually expected to disappear – except that it was about to do just that.

Accordingly, the sausagemakers in the Capital set about fixing the problem they created in 2001. At least a dozen proposals have been advanced, but as of this writing nothing has been decided.

Common to most proposals is the extension of the current regime in some form. That would mean that the current exclusion of $3.5 million per taxpayer would continue, at least for a year.

Because the tax is otherwise going to go away in 2010, extending the 2009 law into 2010 would actually raise tax revenues. In 2011, though, when the exclusion is slated to drop to $1.0 million, an extension of present exclusion levels would come with a revenue cost, so Congress would have to find a way to finance that cost with other taxes.

While reverting to a $1.0 million exclusion makes no sense and would expand the estate tax – supposedly a "rich man's tax" - well into the middle class, it is certainly appealing in the butcher shop on Capitol Hill. Congress will be hungry for money to pay back what is increasingly looking like three stimulus bills and a huge expansion of health care. This writer fully expects that some taxes somewhere are going to have to go up, and why the estate tax shouldn't is unfathomable.

Capital gains will also be affected. Current favorable capital gains tax rates are a product of the same 2001 tax law changes that brought us the increased estate tax exclusions. In 2011, the favorable capital gains tax rates will disappear, and gains will be taxed like ordinary income. The leading estate tax proposals do not perpetuate favorable rates. If you're planning to sell a capital asset (stock, real estate, etc.) in the next few years, don't wait too long.

Under current law, the basis of capital assets (the base from which capital gains tax is computed, usually the purchase price) is increased or "stepped up" to the fair market value on the date of the owner's death. This usually eliminates any capital gains tax liability if heirs sell the property shortly thereafter.

This "step-up" will be limited and complicated after 2010. Those will large capital asset holdings – like farmers – will need to plan carefully to avoid huge capital gains tax liability for their loved ones.

States are just as revenue-hungry as the federal government. Don't expect a reduction in the Maryland estate tax, or an increase in the tax exclusion. It's not even being considered.

Trying to take advantage of current high estate tax exclusions by dying is very poor planning for innumerable reasons, but planning to receive the benefit of reduced capital gains rates and updating your estate plan as the law changes is well-advised. Discuss these issues with your tax, legal and financial advisors.