In 2001, new rules were passed that reduced estate taxes over the next few years and completely eliminated them in 2010. In 2010 the "Tax Hike Prevention Act of 2010" created a new $5 million exemption (no tax on estates smaller then $5 million) and a top estate tax rate of 35%. Similar to the original reform passed in 2001, this law was not permanent.
On January 1, 2013 the estate tax exemption was supposed to decrease to $1,000,000, but on January 2, 2013 President Obama signed the American Taxpayer Relief Act into law, which has made permanent changes to the federal estate tax laws. The federal estate tax exemption has been indexed for inflation and therefore increased from $5.12 million in 2012 to $5.25 million in 2013, but the estate tax rate for estates valued over this amount has increased from 35% in 2012 to 40% in 2013.
In addition to federal estate taxes, some states have estate taxes and inheritance taxes. In states with inheritance tax laws, taxes must be paid by the person who receives inherited property (as opposed to estate taxes which are paid from the decedent's estate). Inheritance tax exemptions and rates may vary depending on who received the property, i.e. the decedent's spouse may be taxed at a lower rate than would be a friend of the decedent. A number of states are phasing out their inheritance tax systems.