Explanation of Federal Unified Credit

A credit is an amount that eliminates or reduces tax. A unified credit applies to both the gift tax and the estate tax. You must subtract the unified credit from any gift tax that you owe. Any unified credit you use against your gift tax in one year reduces the amount of credit that you can use against your gift tax in a later year. The total amount used during life against your gift tax reduces the credit available to use against your estate tax.

The unified credit against taxable gifts will remain at $345,800 (exempting $1 million from tax) through 2009, while the unified credit against estate tax increases during the same period (currently $2 million).

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Letter on Estate Planning – With Federal Unified Credit and Marital Deduction