What is the main purpose of the unified credit in estate planning?

The main purpose of the unified credit in estate planning is to provide a tax credit to the taxable estate at the time of death. This credit essentially reduces the amount of estate tax that is owed based on the total value of the estate, ensuring that a certain portion of it can be transferred to beneficiaries without incurring federal estate tax. This is particularly significant because it allows individuals to pass on wealth to heirs without excessive taxation, promoting a more equitable transfer of assets.

The unified credit incorporates both gift and estate taxes into a single exemption limit, making it more efficient for individuals to plan their estates. It combines the exemptions for gifts made during a person’s lifetime and the value of the estate upon death, streamlining the tax implications associated with transferring wealth.

In contrast to other options, while tax-free gifting during the donor's lifetime is a feature of the unified credit, it isn't the primary focus of its purpose. Avoiding all estate taxes is not achievable due to applicable laws on taxable estates exceeding the exemption amount. Limiting capital gains taxes is related to different aspects of tax planning and is not the function of the unified credit.