The life-time Gift-Tax exemption is now indexed to inflation and should rise over time. Ask your Elder Law Attorney or Estate Planning Lawyer what it is when you engage in your planning. If you have fewer assets than the lifetime exemption amount, then you should never be subject to Gift–Tax. But, for those with more (or who may someday have more) the life-time exemption needs to be considered when making gifts.
There is also an annual Gift-Tax exclusion. If you were to give a large amount to one person, you would use up some of your life-time exemption (the amount that large gift exceeded the yearly exemption amount). But, you can give away a certain amount per recipient each year without using up any of your life-time exclusion and without triggering the need to file a return. This is the annual exemption amount. You can give the exemption amount to as many people as you like (even if altogether it adds up to a lot of money, as long as each gift is at or below the annual exemption amount).
This annual exemption amount was set at $10,000 for many years, but several years ago it was indexed to inflation and has been gradually rising. It can only go up in $1,000 increments, so it takes a few years for each change.
The increasing annual exclusion means that more assets can be given away for tax-planning purposes. If you have a lot of children, grandchildren, or other chosen recipients you can give away a lot of money each year while staying within the exemption amount and avoiding any gift-tax or estate-tax consequences. The exemption is per recipient/per giver, and the recipient does not have to be a relative.
You should also understand that the yearly exemption amount is not a limit on gifting. You are free to give more to anyone, at any time. You can give $20,000, or $50,000, or $100,000, or whatever you want to anyone you want to give it to. If you exceed the annual exclusion amount, then you have to file a Gift-Tax return (IRS form 709) and report the gift to the IRS. All of your lifetime gifts above the annual exemption amount are added up (as the IRS gets your 709 forms each year), so if you someday go over the lifetime exemption amount, you will then owes taxes on all of your future gifts that exceed the annual exemption. There is a complicated formula of adding lifetime gifts back into your estate calculation for estate-tax purposes, but looked at it simply, if you make taxable gifts it reduces the amount shielded from estate taxes by your lifetime exemption (because some of it is used with those lifetime gifts).
The biggest issue that must be pointed out (for most Elders) is that the annual and lifetime Gift-Tax exemptions only apply to taxes. Medicaid (the program that pays for nursing home care for low-asset seniors) is completely separate from taxes and the yearly gift-tax exemption has nothing to do with Medicaid. There is no annual gift exemption under the Medicaid program. If you make any gifts, in any amount, they will make you ineligible for Medicaid benefits if they occur within the five year look-back period for Medicaid eligibility.
You should coordinate any significant gift-giving with your financial and estate planning. You need to know the rules of the various government programs and understand the ramifications of making gifts. You are free to make gifts at any time in your life; they are just subject to possible tax and may make you ineligible for certain benefits such as Medicaid. You should consult with your professional advisors (your Estate Planning Lawyer and Elder Law Attorney) before making any large financial decisions, especially the decision to make gifts.