(Dow Jones) As Congress appears ready to let the federal estate tax lapse on January 1, a dramatic question is what a repeal will do to millions of less affluent taxpayers.

Many who now would owe neither estate nor capital gains tax on inherited assets will owe significant capital gains. And that's just one of the troubling aspects of a repeal.

There are also serious questions about how families with ailing relatives would be affected--a subject of gallows humor since a one-year repeal of the tax was first envisioned for 2010 years ago.

Anyone who turns to a professional for help with all of this is likely to find advisers still sorting through the answers. A big question is whether Congress will enact a retroactive tax, and how it would play out.

Catherine G. Schmidt, an estate-planning attorney and partner at the law firm Patterson Belknap Webb & Tyler LLP in New York, says her firm is working in what could be a narrow window to help clients take advantage of the repeal and avoid a retroactive tax. But, she adds, strategies to this end "are not something anybody already has in their pockets."

Indeed, most advisors truly believed Congress would never let it come to this.

"The estate-planning community is astounded that we've reached this point," said Schmidt.

Under current law, the estate tax disappears for a year in 2010 and then is reinstated in 2011. President Barack Obama blocked a short-term extension Wednesday, but Senate Finance Committee Chairman Max Baucus (D., Mont.) said he will try to move legislation early in 2010 that ensures there won't be a window where wealthy estate owners who die will escape the tax.

For many advisors, the most striking aspect of a repeal is that, along with the estate tax itself, a step-up in cost basis for income tax purposes would go away. The step-up values inherited assets for tax purposes at what they were worth when the person who bequeathed them died. Starting January 1, though, assets will be valued at the original cost of the asset.

So, at a relative's death, "families that would not have had to pay the estate or capital gains tax now may have to pay a capital gains tax on assets that have appreciated in value during the deceased person's lifetime," said Warren Racusin, chair of the trusts and estates practice at law firm Lowenstein Sandler in Roseland, N.J.

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