Medical Expenses are Not Treated as Property Transfers by a Gift

I believe the estate and gift taxes are fair because gift taxes help prevent individuals escape from a significant amount of taxes, but at the same time, allow them to give up to 11.58 million dollars in a lifetime before being taxed at 40 percent if done correctly. In addition, gift and estate taxes help with the redistribution of wealth. Without estate and gift tax laws, individuals could shift wealth to others, usually the younger generation, without paying their fair share of transfer taxes (Carter & Rocamora, n.d.).
The payment of medical expenses of another is not treated as a transfer of property by gift. The amount paid on behalf of an individual for medical expenses is considered a qualified transfer. Therefore, it is exempt and not treated as a gift if payments are made directly to the institution providing medical care to the individual (I.R.C. § 25.2503–6). One of the purposes of this exemption is to avoid medical payments made on behalf of elderly relatives or other individuals from being treated as gifts.
Considering the annual exclusion is critical for income tax planning motives. Starting in 2018, the amount of exclusion is 15,000 for each donee. If you are married, you and your spouse can give each 15,000. The annual exclusion allows donors to start making gifts to various donees per year early in their lifetime to avoid a substantial amount of transfer taxes, creating significant tax savings. Gifting is considered for estate planning purposes, and if done correctly, it can be tax-effective (Carter & Davies, n.d.)
Income shifting is one of the most favorable consequences of using the annual gift exclusion. “If you have highly appreciated assets, better to keep those and give assets with a high basis, like cash, and to get that future appreciation out as long as you can afford to do so” (Carter & Rocamora, n.d.).