Frederic M.C. Hu, Attorney at Law


Estate Planning Thoughts from Frederic Hu

Unlimited Giving for Estates (not a part of your will) for tuition and medical expenses

Unlimited Financial Giving Article (CBS)

Giving toward Tuition and Medical expenses can reduce the tax on an estate and serve to be in addition to the $14,000/person/year allowed under current gift tax exclusions.  

Basically, if your estate possesses the means and your beneficiaries are either seeking medical treatment or education, pay for their expenses tax-free.

Tuition expenses
The IRS (specifically, section 2503(e) of the Internal Revenue Code) provides gift-tax exclusion for any amount paid on behalf of an individual as tuition to educational organizations for the education or training of the recipient. The exclusion is available regardless of the relationship between the donor (the person making the gift) and donee (the person benefiting from the gift) and is in addition to the annual $14,000 per person per year gift tax exclusion. The exclusion only applies to tuition costs and does not apply to amounts paid for books, supplies, dormitory fees, board or related expenses that do not constitute direct tuition costs. 
In order for the exclusion to apply, two requirements must be met. First, the tuition must be paid directly to the qualifying educational institution. And don't make the common mistake of thinking reimbursements made to the student for tuition expenses previously paid qualify -- they don't. Second, if funds are transferred by the donor to a trust providing for distributions to be made by the trustee for tuition expenses incurred by a trust beneficiary, the transfer is not a direct transfer to an educational organization and thus does not qualify for the exclusion. Payments for books, supplies, dormitory fees, board and similar expenses do not qualify for this special exclusion.
The educational organization to which the tuition is paid must meet prescribed criteria. A qualified educational organization is one that maintains a regular faculty and curriculum and that has a regularly enrolled body of students at the place where its educational activities take place. 
Medical expenses
The Internal Revenue Code also provides an unlimited gift tax exclusion for amounts paid on behalf of a donee directly to a provider for medical care. The exclusion is available for payments for medical insurance paid by the donor on behalf of the donee, but not for medical expenses previously paid by the donee that are reimbursed by the donor. Also, the exclusion does not apply to medical expenses of the donee that are reimbursed by the donee's insurance. 
Accordingly, if a donor pays a medical bill of the donee who is reimbursed by his or her insurance company, the donor's payment is not eligible for the exclusion to the extent of the reimbursement. In such situations, the donor is viewed as having made a gift on the date of the reimbursement.