In 1998, all estates over $625,000 were subject to federal estate taxes at
tax rates up to 55%. About 3% of Americans paid estate taxes.
In 2006-2008, all estates over $2 Million are subject to estate taxes of 45%.
In 2009, all estates over $3.5 Million are subject to estate taxes of 45%.
The higher exemptions from estate taxes end under current law on January 1, 2011, when all estates over $1 Million will again be subject to estate taxes at tax rates up to 55%.
Life insurance is included when the IRS calculates your gross estate by law.
A 2/27/2006 study by resonsiblewealth.org estimated there would be 5,854 federal estate tax returns filed in 2009 the United States. This is 0.25% of those who die in 2009.
The same study estimated that in Michigan, 153 federal estate tax returns would be filed. This is 0.18% of those who die in Michigan in 2009.
The Congressional Budget Office assumes that the tax cuts will expire December 31, 2010 (Tax Notes (2007 TNT 65-24).
Under PAYGO (pay as you go) adopted by Congress in 2007, any extension of tax cuts must be offset by either a reduction in expenses or an increase in revenue.
I read this to mean that in 2010 the estate tax is likely to flashback to the law in effect in 2001 ($1Million / person exemption) and the only issue is which political party will be successful in blaming the other for the flashback.