Q:

What gifts qualify for the education and medical exclusion?

A:

This is one of the interesting little loopholes in the Gift Tax Law. If someone makes gifts to a medical provider on behalf of someone else, a parent pays for a child’s or grandchild’s actual medical expenses and pays directly to the medical provider, it is not considered a gift. It’s not reportable and there’s no limitation in terms of how much that payment could be. The same is true for educational expenses, if they are paid directly to the educational provider, the school, not to the student and to a landlord for their rent, but directly to the school for tuition, books, room, and board. Those are exclusions from the tax regime.

Note: The Tax Cut and Jobs Act of 2017 signed into law in December 2017 increased the exemption amounts mentioned in these videos. The personal estate, gift, and generation-skipping tax lifetime exemption was increased to $11.18 million per person. The annual gift tax exclusion was increased to $15,000 per donee per year.

Both amounts are indexed for inflation and may increase year over year until December 31, 2025, when the law sunsets and reverts to 2017 values.