How does "gift of equity" work from the giver's standpoint?

The $100,000 in your example is considered a gift. Every person gets an annual gift exemption ($13,000 in 2010) that they can use for gifts to individuals. In this case, the $100,000 gift is more than the $13,000, so, initially, the $87,000 is taxable as a gift. However, each person also gets a $1,000,000 lifetime exemption they can use. In this case, the $87,000 is used against the $1,000,000, meaning your mother pays no gift tax. The $87,000 is subtracted from the $1,000,000 leaving an exemption limit of $913,000. This $913,000 is now the limit for your mother's tax free estate when she pes, instead of the $1,000,000 she would normally have. If your mother's estate is less than say $900,000, she has nothing to worry about.