Annual exclusion is the amount an individual can give each year to any number of recipients without incurring U.S. federal gift tax or using lifetime gift and estate tax exemption. The exclusion amount is indexed for inflation and applies per donor, per donee, to present-interest gifts. It is central to many estate planning strategies that gradually transfer wealth, fund life insurance premiums in irrevocable trusts, or support family members while minimizing transfer taxes. To qualify, gifts must provide the recipient with immediate use and enjoyment, which often requires careful drafting of trust provisions and notices when gifts are made to trusts rather than directly to individuals.

Advisors use the annual exclusion as a building block in life insurance trust funding, education funding, and family gifting programs. They coordinate with attorneys to design ILITs and other trusts with Crummey withdrawal powers so that contributions qualify as present-interest gifts. Clients may make annual exclusion gifts to children, grandchildren, or ILITs that own life insurance, allowing large death benefits to be funded with minimal transfer tax impact. Advisors track annual exclusion usage to avoid inadvertent taxable gifts and to align with broader estate tax strategies. Understanding the annual exclusion helps advisors explain how steady, smaller gifts can accomplish significant wealth transfer over time while keeping compliance and documentation tight.