gift tax rules

Annual exclusion is $13,000 in 2009.
Lifetime exclusion is $1 million in 2009.
Estate tax exclusion is $3.5 million in 2009.
So if you give one person more than $13,000 in a single year, then the amount over the $13,000 goes against your $1 million lifetime exclusion.

Your lifetime exclusion goes against your estate tax exclusion. So if you have used up say $500,000 of your lifetime exclusion before you die, then at your death, you have only a $3 million estate tax exclusion, not $3.5 million.

From www.fairmark.com/begin/gifts.htm:
Most people don't have to worry about this tax because it generally doesn't apply until you make gifts exceeding annual exclusion amount to one person within a single year. And there are other exclusions that often prevent the gift tax from applying. There is an unlimited exclusion for gifts to your spouse. (An annual limit applies if your spouse is not a U.S. citizen.) And there's an unlimited exclusion for the payment of medical expenses or educational costs, provided you make these payments directly to the service provider or educational institution.