This is not the amount of your estate that is excluded from gift and estate taxes, but is a dollar for dollar tax credit against gift and estate taxes. Under this provision, the value of your transfers under the stated threshold amount is exempt from both estate tax and gift tax.  The threshold is now set permanently at $5.12 million, but is adjusted annually for inflation. 
 

The exclusion is portable, meaning that if one spouse dies and fails to take full advantage of their exclusion amount, the remainder can be used by their spouse.

 

Both estate and gift taxes are taken together when determining the amount of taxes due on the transfer of property. This means that both lifetime gifts and bequests in a will are combined to determine whether the value of your transfers exceeds the exclusion amount.