IF YOU'VE BEEN doing some estate planning over the past few years, chances are you breathed a little sigh of relief when 2008 ended.

To be brutally blunt: Dying in 2009 is a less taxing event than dying in 2008. That's because effective Jan. 1, the federal estate-tax exemption jumped to $3.5 million for anyone who dies in 2009 -- up from $2 million last year. So you can shelter up to $1.5 million more ($3 million more if you're married) from any federal estate-tax hit than if you had passed away in 2008. Yup, this is morbid. But it's welcome news to your heirs.

That said, you need to be careful. This leap in the exemption could throw your estate plan out of whack. Without a careful review of your arrangements, part of your estate could be allocated in ways you didn't intend.

But before I go any further, let me just make a plea to all of you who took a look at that $3.5 million figure and decided this article definitely does not apply to you. Sure, $3.5 million sounds like an awful lot of money. But you might be wealthier than you think. For federal estate-tax purposes, your estate includes your home, cars, retirement accounts, taxable investment accounts, collectibles and so forth.

Perhaps more important, it also includes any death benefits from personal life-insurance policies you own, including those on your own life. (If you have the power to change beneficiaries or coverage amounts, you own the policy.) With life-insurance coverage thrown into the mix, the odds are much higher that your estate exceeds the seemingly generous $3.5 million exemption. So if you don't already have an estate-tax savings strategy in place, now may be the time to create one. For assistance in getting started, see our estate planning section.

For those who already have an existing estate plan, here's how the new biggie-sized exemption could affect you along with advice on how to avoid potential danger zones.

Married? Your May Be Funneling Too Much or Not Enough Into Your Bypass Trust

For a more detailed explanation of these trusts, click here

Since you name the beneficiaries of the bypass trust, the amount used to fund the trust is included in your gross estate for federal estate-tax purposes if you die before your spouse. However, that amount is then fully sheltered by your estate-tax exemption. The result: no federal estate-tax bill. So far, so good.

But here's the rub: Many wills don't specifically state how much will go toward funding the bypass trust. Instead, it's just whatever current federal tax law provides as the exemption amount. But with the exemption suddenly jumping to $3.5 million from $2 million, your bypass trust could wind up with a lot more money than you intended -- and your spouse with a lot less.

For example, say you have a $4 million estate. Your will stipulates that a bypass trust is to be funded with an amount equal to the current federal estate-tax exemption. So if you pass away, a whopping $3.5 million would automatically funnel into the trust. Your spouse would get the remainder of your estate, which would be only $500,000. Had you died in 2008, your spouse would have received $2 million.

While your spouse has the right to dip into the bypass trust to meet reasonable financial needs, it doesn't make sense to leave the window open for future problems when it's so easy to close it. Worst-case scenario: Your spouse gets into a legal hassle with your kids regarding what's "reasonable." The solution here is simply to revise your will to stipulate a specific figure to fund the bypass trust should you die before your spouse.

If you already specify an amount, make sure you don't have the opposite problem: too little money going into the bypass trust. Say you have a $4 million estate. Your will stipulates that if you die before your spouse, $2 million (the old exemption amount for 2008) would automatically flow into the trust. Your spouse would get the remaining $2 million. But she may not need or want all that money if she has a substantial estate in her own right. While the $2 million figure used to make sense, you can now put more into the bypass trust and thereby take advantage of the larger $3.5 million exemption.

The solution in this case is to amend your will so that the bypass trust will be funded with the upgraded $3.5 million amount if you die before your spouse. Under the amended plan, your kids would get $3.5 million instead of just $2 million free of any federal estate-tax hit. Plus, your full $3.5 million exemption would be utilized instead of partially going to waste.

Unmarried? You May Be Leaving Too Much to Charity

If you're single and your estate is worth more than $3.5 million, you need to do some planning that is, unless you want Uncle Sam to be one of your main beneficiaries.

One way to tackle this problem is to leave just enough to charity to reduce your taxable estate to the magic $3.5 million figure. That way, the expanded $3.5 million exemption would wipe out any federal estate-tax bill. (Note: Your existing will might call for leaving just enough to charity to reduce your estate to the old-law exemption amount of $2 million).

The solution? You can now leave $1.5 million more to friends and relatives (and $1.5 million less to charity) while still leaving zero to the U.S. Treasury. I'm not advising you to leave less to charity. I'm just letting you know that you now have the option of leaving more to friends and relatives without triggering a federal estate tax bill.

The Current Shape of the Federal Estate Tax

The federal estate tax will remain in existence until 2010 when it scheduled to be repealed. But that's only for 2010. It will come back with a vengeance in 2011.

At least, that's how the law reads right now. I personally doubt we will ever see the promised repeal even for one year. I also doubt the estate tax situation in 2011 will be as bad as scheduled. Bet on Congress to permanently install a $3.5 million exemption sometime before 2010.

In any case, here's a breakdown of the current rules: