One hotly debated aspect of the so-called death tax is the lifetime limit on property transfers that's exempt from taxation. The federal government allows taxpayers to transfer a certain amount of wealth, either during their lives or after death, before it starts taxing those gifts.
Throughout this century, the protected lifetime amount has increased, from $1 million in 2001 to $3.5 million in 2009. But the Tax Act of 2001 included a clause that would revert this exemption back to $1 million at the end of 2010 (more on this later) [source: Schwab].
The exemption amounts may seem like tremendously high sums. After all, who has a million U.S. dollars or more to give away? But remember: This is a lifetime amount. Combine the value of a person's real estate, possessions and investments, and the amount of property that person's heirs stand to inherit, and it can easily approach the limit. Add to that the gifts the person may give during his or her lifetime to charities, family members, alumni associations and other organizations, and it's easy to imagine even a middle-income person hitting the exemption cap.