Under federal law, each of is allowed to have $2,000,000 at our death without their being any federal estate tax liability. This is a huge increase from the $675,000 amount that was the federal estate tax exemption amount as recently as in 2001.  (Understand, that many states have an inheritance tax and some have a pick up tax.  California, however, is tied to the federal state death tax credit which means that there is not an additional tax).

On January 1, 2009, the federal estate tax exclusion increases to $3,500,000.  Thus a married couple with properly drafted estate planning documents could leave $7,000,000 without their estate owing any tax.  This is without any fancy or complicated estate planning. 

The estate tax rate of 45% will remain the same, but obviously an heir stands to receive a lot more money if someone dies at 12:01 a.m. on January 1, 2009 rather than 11:59 p.m.  on December 31, 2008.  As many have speculated, certain heirs will not be telling doctors to pull the plug in December!

President Bush had originally campaigned on eliminating the estate tax.  He did not accomplish that goal.  Moreover, regardless of who wins the 2008 presidential election, it is unlikely that the estate tax will be eliminated.  In fact, the only thing that is relatively certain is that Congress will act in 2009.  The reason that is true is that in 2010 the estate tax is set to be eliminated, if only for one year.  In 2011, the law currently provides that it returns to a $1,000,000 exclusion amount.

Both Obama and McCain have indicated that they will not eliminate the estate tax.  Obama basically would continue the $3,500,000 exclusion amount with a tax rate of 45% on amounts over $3,500,000. 

McCain, on the other hand, proposes a $5,000,000 applicable exclusion amount with a top tax rate of 15%.   The reason for the 15% number is that it is the same as the current capital gains tax rate.

Very wealthy Americans care less about the applicable exclusion amount than they do about the top tax rate.  For example, the difference between a 15% and 45% estate tax rate on a $53,500,000 estate, with a $3,500,000 applicable exclusion amount is $15,000,000.  That is more than twenty times more tax savings than the increase of the applicable exclusion amount from $2,000,000 to $3,500,000.

However, for the vast majority of Americans, $3,500,000 indexed for inflation will mean that there estates will not be subject to federal estate tax.  There is no telling what the individual states will do.

Remember, estate taxes and probate are two of the major issues that we as estate planning attorneys deal with on a daily basis.  It is possible to have estate taxes and not have a probate and it is possible to have a probate and not have estate taxes.