Unified Tax Credit

The unified tax credit represents the total value of stuff you can give away during your lifetime without the transfer facing any gift or inheritance tax. It comes up in estate planning.

You want to give away your collection of shrunken human heads. You plan to gift one to each of your 58 grandkids (you've lived a busy life). Each head is valued at $175,000. Multiplying that by the number that you plan to give away, your total handout (or headout) equates to $10.15 million. The unified tax credit is $10 million, meaning that the total gift above that level is $150,000 ($10.15 million in total gifts - $10 million of unified tax credit). There's a 40% tax on that amount, meaning that $60,000 in taxes are owed.

The unified tax credit allows most of that series of gifts to happen without any tax. However, above the level, the value of the items gets taxed at the level stipulated by the tax code.