Unified Estate and Gift Tax Credit Law and Legal Definition

Unified estate and gift tax credit or unified credit is a tax credit applied against the federal unified transfer tax. This credit is referred to as the "unified" credit because federal gift and estate taxation are integrated into one unified tax system. The unified estate and gift tax is a tax imposed on property transfer, especially by inheritance, by will, or as a gift. The unified credit is composed of two different limits to cover the two types of transfers. Under current law, the unified credit against taxable gifts is $345,800 (exempting $1 million from tax) indefinitely, while the unified credit against estate tax increases until 2009.

For example, suppose A gives $25,000 to his sister in 2009 as a gift during his lifetime. The first $13,000 of the $25,000 gift is tax-free. A can either pay a gift tax on the excess over $13,000 or take advantage of the $345,800 unified credit to avoid paying tax on the gift made. If unified credit is availed, that will reduce the amount available to offset the estate tax upon A’s death. On the other hand, if A report and pay the tax, and later die, these previously taxed gifts are added back to A’s estate, the estate tax recalculated, and the amount of gift taxes A previously paid on the excess are credited against any final estate tax due.