It's hardly the fiscal cliff, but estate taxes are set to face their own day of reckoning next year. The current rules allow estates of up to $5.12 million to avoid all estate taxes, and that level can be effectively doubled for a couple. Large estates that do face taxes must pay a levy of 35 percent, which is low by estate-tax standards. Gift taxes have also been relaxed.

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Unless Congress takes action, the $5.12 million exclusion will fall to $1 million effective January 1. And that 35-percent tax rate will jump to 55 percent. Financial advisers have been urging their wealthier clients to seriously consider using the current gift and tax rules to transfer assets to heirs this year. Given the complexity of preparing holdings for transfer, especially illiquid assets such as property and private business equity, time is running short for such tactics.

Estate taxes are often lost in the shuffle over trillion-dollar deficits and the expiration of the Bush-era tax cuts. Besides, the prospect of forcing wealthy people to pay more taxes is not exactly unpopular these days.

However, according to an analysis by LIMRA, an insurance marketing firm, the less-generous estate rules would potentially affect far more than the one-percenters. LIMRA looked at the Federal Reserve's recent report on consumer finances in 2010. While only 4.4 percent of households had financial assets exceeding $1 million, estates also include the values of primary residences, private businesses, and, in some cases, life insurance. When these assets are included, that 4.4 percent rises to 12.5 percent—an eighth of all U.S. households.

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"If Congress fails to act, 14.7 million U.S. households would have a potential estate tax liability," LIMRA said. "The average tax due for these families would be $1.4 million." Many of these households have enough life insurance to pay estate taxes, but more than half of them do not. These families would still owe, on average, $1.6 million after applying the proceeds of their current life insurance policies.

Life insurance is widely used to avoid or minimize estate taxes. And LIMRA, not surprisingly, would like to see people bulk up on their life insurance to protect themselves from bigger estate taxes.

Other estate-tax provisions likely to be considered by Congress, the firm said, are retaining the existing rules or approving a compromise that has been widely suggested—a $3.5 million exemption and a top estate tax rate of 45 percent.

If the existing generous rules were maintained, which is not considered likely, there would still be potential estate taxes due on 2.4 million U.S. households, and their average tax at the 35-percent rate would be $2.4 million. About 43 percent of them do not have enough life insurance to cover these tax obligations, LIMRA said, and would still owe an average of $3.1 million after their life insurance proceeds had been applied to their estate taxes.

Under the compromise scenario, 3.6 million households would have potential estate-tax liabilities averaging $2.6 million. About 53 percent of them would not have enough life insurance to pay these taxes and would still owe $3 million, on average, after applying the proceeds from their life insurance policies.

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Many estate-tax analyses emphasize how few people are affected. The nonpartisan Tax Policy Center, for example, estimates that less than three-tenths of 1 percent of the people who will die next year would owe estate taxes if Congress adopted the compromise set of estate rules. That would total fewer than 7,500 estates, and the average rate on taxable assets they would pay wouldn't be 45 percent, but less than 20 percent. LIMRA says its figures are much larger because they measure the assets of everyone alive, not just those who might die in a single year.

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