There has been plenty of media coverage of the capital gains tax facing Medtronic shareholders when the company's proposed acquisition of Covidien closes.

The structure of the transaction is an inversion, which triggers a capital gains tax for holders of Medtronic when they exchange their shares for shares of the newly merged Irish company, Medtronic PLC.

One aspect of this tax that has not been deeply explored is how it blows up the estate plans of lots of Medtronic shareholders, many of them retirees from the company. It has the effect of creating a tax, consuming a bunch of their family's wealth, when they had a perfectly legal plan to never let their Medtronic stock gains get taxed.

The basic principle at work here is what's called a stepped-up basis. Under the federal tax laws, there is an exclusion from estate taxes of a certain amount of assets when a person dies. Under current federal law, it is more than $5 million, and twice that if it's a married couple that manages its affairs well.

When an estate files its tax return, the assets of the estate are valued at fair market value. In the case of a publicly traded stock like Medtronic, that's just a matter of looking it up on Bloomberg and filling in the form, and today it's around $64 per share.

When the heir takes possession of the stock, that $64 is her historical cost, her "basis," even though Dad may have had an average cost of $10 per share. That's what's meant by a stepped-up basis.

So, by dying with the shares in his estate, Dad effectively transferred $54 per share of gain to his daughter in a way that's never going to be taxed. His daughter can sell it today at $64, with no taxable gain.

How many individual Medtronic shareholders had exactly that in mind for their Medtronic shares? Impossible to say, but the guess here is that it was a lot of them.

That's no longer possible, not unless Dad and Mom manage to die between now and when the transaction closes.

So when you meet the Medtronic shareholder in their golden years who sounds very crabby about the pending transaction with Covidien, please understand that a simple plan to leave some wealth for the kids just took up to a 30 percent hit.