The applicable exclusion amount (formerly known as the unified credit) exempts a certain amount of gifts made during your life from federal gift tax and exempts a certain amount of your estate from federal estate tax. In other words, if you are a U.S. citizen or resident, you will be able to leave a certain amount of your property free from gift tax or estate tax. The gift tax applicable exclusion amount is $1 million.

Here is the current table for the estate tax applicable exclusion amount:

Keep in mind that the applicable exclusion amount for gift tax purposes is $1 million even though the applicable exclusion amount for estate tax purposes is $3.5 million in 2009. Any portion of the applicable exclusion amount used for gift tax purposes effectively reduces the applicable exclusion amount that will be available for estate tax purposes. In addition, although estate tax is scheduled to be repealed in the year 2010, the gift tax will remain in effect.

It is especially important for spouses to understand the applicable exclusion amount. Without advance planning, the applicable exclusion amount of the first spouse to die may be lost. It is wise to seek advice from an experienced estate planning attorney so that each spouse can make maximum use of the shelter that the applicable exclusion amount provides.