I'll be honest, I just cut my exhaust after the axle pointing downwards. I have been meaning to get it to a muffler shop/weld a bent pipe to it to get it routed towards the rear wheel, but its pretty low on my list of mods at the moment.
I haven't seen any real downside to doing it this way and exhaust fumes haven't been an issue, even with the windows down when in motion or stopped. (I let my friend drive sometimes, so I've been in every seat in my 4Runner, including relaxing in the cargo area when we had 6 people to run to the city and back this weekend.)
I wouldn't say its the safest option as theoretically you could get carbon monoxide seeping into the vehicle, but I honestly haven't experienced that at all. A few people have done it on their 4th gens as well. I would say that if you are going to cut it after the axle, make sure the cut is at an angle so the pipe points downwards towards the wheel wheel rather than straight to try and push fumes from under the vehicle to get the best possible evacuation. Bottom line, if you're that strapped for cash, hacking it off at the axle is possible; but I'd say spend the money and get it done right (which I need to do eventually... >.< )
I wouldn't mind testing the vehicle for exhaust fumes, but I don't have a C0 tester. Would be an interesting experiment though.