There are two categories of gifts, those that don’t use exemption and those that do. 

The rules are straight forward. There’s a $12.92 million (in 2023) lifetime limit before a gift tax applies. For any gifts over $17,000/person, you must file Form 709, but you don’t pay taxes until you exceed $12.92 million in total. For couples the limits are effectively doubled.

Personal gifts of money consume the annual and lifetime gift tax exemption. However, bona fide charitable contributions do not. Tuition or medical expenses are treated the same way, if the money goes directly to the school, medical provider or health insurer.

 Tuition for nursery school through postgraduate is excluded from the limits – if paid directly to the school. However, contributions to a 529 college savings plan are subject to the annual limit and generally restricted to higher education. (Consult a tax advisor and ask about your state’s plan limits and if it’s a “prepaid tuition plan” or an “education saving plan”.)

 Directly paid Medical bills to diagnosis, treat, or prevent disease, for medical transportation, medical insurance, qualified long-term care, or for qualified long-term care insurance premiums are excluded. However, HSA contributions are subject to gift tax annual and lifetime limits.  

If the objective is to reduce an estate using gifts, there is potential to go beyond the gift tax exemption significantly by paying school tuition, medical bills, health insurance, or qualified long-term-care insurance premiums

Coupled with gifts that fall within the exemptions, these payments can help an unpaid family caregiver with a child’s tuition and medical bills. Or, used to pay medical out-of-pocket costs for a new and growing family to let their HSA grow. It might pay insurance premiums for a college student. Together they can go beyond money to include conversations and counsel.