Under current law, each person has a $3.5 million exemption from the federal estate tax, and any excess is taxed at a 45% rate. That is, a person dying with $3.5 million or less is not subject to any estate tax. Amounts in excess of that amount that will be passed on to charity or to people other than a surviving spouse (or a marital trust for the spouse's benefit), are subject to the estate tax.

Under the Economic Growth and Tax Relief Reconciliation Act of 2001, known as EGTRRA, the estate tax law is scheduled to be repealed as of January 1, 2010.

However, EGTRRA itself expires at the end of next year, which will cause the estate tax rules to revert back to the way they were before 2001.

As a result, beginning in 2011, the top marginal estate tax rate will be 55% and the estate tax exemption will be only $1 million (plus adjustments for inflation since 2001). As you can see, the estate tax law is currently being whipsawed between current rates, repeal and reversion to higher historical rates. Unless Congress passes a bill to change this and President Barack Obama signs it into law, those are the facts.

The current situation is illogical and nonsensical. The heirs of people who die in 2010 will pay no estate tax at all, while those of people who die in 2011 or later will be penalized by rates comparably higher than today's. Of course, the timing of one's death typically is not something that can be planned, so any benefit from the 2010 estate tax repeal is simply fortuitous (for the heirs, not for the decedent).

We are in this predicament because when the Economic Growth and Tax Relief Reconciliation Act was signed into law to reduce and ultimately repeal the estate tax, the projected cost to the government would have been hundreds of billions more if the repeal were permanent.

By having the Economic Growth and Tax Relief Reconciliation Act end in 2010, the projected cost was dramatically reduced, which helped it get passed.

Sleight-of-hand and politics made the cost appear lower, and the future expiration of EGTRRA was kicked down the hill to a future administration to address.

Many bills have been proposed during the last year by members of both houses of Congress to change this result. They include: permanent estate tax repeal; temporarily or permanently locking in the current 45% rate and $3.5 million exemption; raising the exemption to $5 million and decreasing the rate to 35%; and decreasing the exemption to $2 million.

In my view, there will be a tax act signed into law before the estate tax is repealed in 2010, to avoid both the loss of federal tax revenue as well as the potential windfall to a limited number of heirs.

As we inch closer to December 31, Congress is running out of time to debate the issue. The likelihood of a mere temporary fix is increasing—one that extends the current exemption and tax rate through the end of 2010.

That means Congress will likely revisit the issue again in 2010, hopefully providing a permanent tax law and certainty.

Some in Congress prefer to keep the issue alive from year to year, as they can score political points with their constituents by supporting one position or another, and can use the issue to raise campaign funds. We will have our answer very soon.

David A. Handler works in the Chicago office of Kirkland & Ellis, where he is a partner in the trusts and estates practice group.