Due to a compromise between Congressional Democrats and Republicans, the Estate Tax is currently in flux.  Today the taxable rate of an estate is set to a maximum of 45% of the estate, which is a considerable drop from recent years.  In as recently as 2001 the taxable rate was 55%.  It was during this year that the Senate passed the 2001 Tax Act, which began to drop the taxable rate of an estate and at the same time allowed amount excluded from the estate tax to rise.

The tax is applied to the amount of the Gross Estate over the exclusion amount.  This amount has been increasing from the $1,000,000 it was set at in 2001. From 2004 to 2005 the exclusion amount was $1,500,000, the amount then rose to $2,000,000 from 2006 to 2008.  Currently, in 2009, an estate valued at $3,500,000 or more is deemed taxable and required by the IRS to file an estate tax return.   The amount of a Gross Estate in excess of this amount, $3.5 Million, is likely to be subject to the 45% tax.  Unless the law is changed shortly, there will be no Estate Tax levied, regardless of size of estate, in 2010.

Under current law, however, the excluded amount is reduced to $1,000,000 in 2011.  This means that many more estates are likely to be subject to the tax than presently.  An individual with foresight can reduce taxes by reducing the size of their Gross Estate.  This can be accomplished by charitable donations, lifetime gifts, the use of irrecovable trusts, or other methods.

Currently President Obama is seeking to pass legislature to keep the estate tax in 2010, with the current amounts of exemption and taxable rates of 2009.  President Obama is also perusing a freeze on these amounts at the 2009 levels for the subsequent years to follow.  As of April 2^nd, 2009 the Senate passed Amendment SA 873 to federal budget, changing the amounts of the estate tax from the years 2010 to 2014.  If enacted the tax exemption level would raise to $5,000,000 and the taxable rate would drop to 35% and un-repeal the estate tax in 2010.  Those with significant wealth and estate planning professionals will need to keep an eye on this and similar legislation for the foreseeable future.