For purposes of the federal unified transfer tax, you can — during your lifetime, or at death — give an unlimited amount of wealth to your spouse tax-free. This can be a great advantage, but may not be the panacea that it seems. The reason: although you can transfer any amount that you want to your spouse, if your spouse survives you (and does not remarry), there will not be a marital deduction available to lessen the estate tax liability at his or her later death. For this reason, it's often a good idea not to give everything to the spouse outright, but to use a credit shelter bequest.

After 2010, a surviving spouse may to take advantage of the unused portion of the estate tax exclusion of a deceased spouse, thus increasing the available exclusion.

Catherine died in 2011 with a taxable estate of $3 million. An election is made on Catherine's estate tax return to permit her husband, Heathcliff, to use any of her unused exclusion amount. Heathcliff, who had not made any lifetime taxable gifts, dies in 2012 with a taxable estate of $10 million. The executor of Heathcliff's estate computes his deceased spousal unused exclusion amount as the lesser of: Heathcliff's basic exclusion amount of $5 million or Catherine's basic exclusion amount ($5 million) minus the amount of Catherine's taxable estate ($3 million), which equals $2 million. Accordingly, the total applicable exclusion amount available to Heathcliff's estate at his death is $7 million: his basic exclusion amount of $5 million, plus $2 million in deceased spousal unused exclusion from Catherine's estate.

To take advantage of this provision, a special election must have been made by the predeceased spouse's estate on its estate tax return.