Annual exclusion gifts are transfers made by a donor to individuals or qualifying trusts that fall within the federal annual gift tax exclusion amount, allowing them to pass tax-free without using lifetime exemption. These gifts can be made to any number of recipients each year and are commonly used to fund 529 plans, support children or grandchildren, and pay premiums on life insurance held in irrevocable trusts. To qualify, the recipient must have a present interest in the gift, which often requires Crummey withdrawal rights when gifts are made to trusts. Annual exclusion gifts are a cornerstone technique for gradually moving assets out of a taxable estate while maintaining simplicity and flexibility.

Advisors help clients structure annual exclusion gifts by recommending gifting schedules, coordinating with attorneys on trust provisions, and ensuring that Crummey notices are prepared and retained when ILITs are involved. They track which family members receive gifts and how much is contributed each year to stay within exclusion limits. In life insurance planning, annual exclusion gifts often fund premiums so that large death benefits can be held outside the taxable estate. Advisors also discuss the tradeoffs between using annual exclusion gifts versus larger, lump-sum gifts that use lifetime exemption or other techniques like GRATs and CLATs. Understanding annual exclusion gifts helps advisors design repeatable, tax-efficient gifting programs that align with long-term estate and family goals.