Which of the following transfers qualifies for the unlimited gift tax exclusion when paid directly to an institution?

• A. A cash gift to a relative
• B. A payment of tuition directly to an educational institution
• C. A payment for books and supplies directly to a bookstore
• D. A donation to a charity

Answer: (B)

Some transfers are treated specially for gift tax: when you pay someone’s tuition directly to an educational institution, that amount is excluded from gift tax without any limit. This rule is designed to support education by ensuring the funds go toward tuition.

That’s why paying tuition directly to the school is the best choice. It qualifies for the unlimited exclusion, so no gift tax is due on that amount regardless of size.

A cash gift to a relative is still a gift and usually uses the annual gift tax exclusion (and possibly the lifetime exemption). It does not get the unlimited treatment simply because it’s a gift to a person.

A payment for books and supplies to a bookstore isn’t tuition, so it doesn’t qualify for the unlimited exclusion.

A donation to a charity is also a gift, but not an exclusion category for gift tax; it’s handled differently for charitable deductions and isn’t the tuition-specific exclusion.