In 2001, every American received a "credit" against federal Estate and Gift Taxes of $220,550 which was equivalent to transferring $675,000 tax free to your heirs. And, if you were married, and your spouse (if an American) also used the $675,000, you may, as a couple, give $1.35 million to your heirs free of Estate Tax. In 2006, 2007, and 2008, the amount you can pass tax free to your heirs increased to $2 million and, in 2009, to $3.5 million. In 2010, for only a one-year period, the estate tax is no longer in effect. The one year repeal has no effect on gift taxes; it stays in place. (In 2011, the estate tax re-emerges.)

This credit is referred to as the "unified" credit because federal gift and Estate Taxation are integrated into one unified tax system. The unified credit is composed of two different limits to cover the two types of transfers. The unified credit for gift tax purposes is  $345,800 (exempting $1 million from tax) in tax year 2009, while the unified credit for estate tax purposes is $1,455,800 during the same period. For example, suppose you give $25,000 to your sister in 2009 as a gift during your life. The first $13,000 of your $25,000 gift is tax-free. You will either pay a Gift Tax on the excess over $13,000 or take advantage of the $345,800 unified credit to avoid paying the tax on your gift-giving. Using the latter option will reduce the amount available to offset the Estate Tax upon your death. On the other hand, if you report and pay the tax, and later die, these previously taxed gifts are added back to your estate, the Estate Tax recalculated, and the amount of Gift Taxes you previously paid on the excess are credited against any final Estate Tax due.