Until recently, the federal gift and estate tax were integrated into one tax rate schedule with a unified gift and estate tax credit and exclusion equivalent. Tax law passed in 2001 effectively split the two into separate tax systems, each with its own tax credit and exclusion equivalent.

Under the current law, the gift tax unified credit and exemption equivalent remains unchanged from what it was before the 2001 Tax Act. The credit remains $345,800, which produces a gift tax exclusion equivalent of $1,000,000.

The estate tax unified credit and exclusion equivalent is repealed for 2010 unless Congress reinstates it. It is scheduled to return in 2011 with a credit amount of $345,800, which produces an estate tax exclusion amount of $1 million.

Sunset provisions in the 2001 Tax Act repeal the act and its changes; in 2011, under present law, the system reverts to the unified gift and estate tax, as if the 2001 law had never existed. Until then, any discussion of estate planning must recognize there are two separate tax systems in play. As the estate tax unified credit rises, it will become increasingly more costly, from a tax perspective, to transfer large amounts of property by gift than at death.

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