IRC Section 2503(b) defines the annual exclusion for present interest gifts, allowing donors to give up to a specified amount per recipient each year without using any of their lifetime gift and estate tax exemption. To qualify, the gift must be a present interest, meaning the recipient has an immediate right to use, possess, or enjoy the property. In life insurance planning, this section is critical for funding ILITs with annual exclusion gifts used to pay premiums. By implementing Crummey withdrawal powers, beneficiaries receive a temporary right to withdraw contributed amounts, transforming what would otherwise be a future interest gift into a present interest gift that qualifies for the annual exclusion. Section 2503(b) effectively provides a powerful, repeatable way to move wealth out of the estate on a tax-efficient basis while supporting ongoing life insurance, long-term care, or wealth transfer strategies.

In practice, advisors rely on IRC Section 2503(b) when designing systematic gifting programs. A married couple might gift annual exclusion amounts to an ILIT for each child and grandchild, multiplying the total dollars that can be transferred each year without using lifetime exemption. The trustee issues Crummey notices, giving beneficiaries a limited window to withdraw contributions; after the window closes, funds remain in the trust and are used to pay premiums on permanent life insurance that will ultimately benefit the family. Advisors also use annual exclusion gifts to shift interests in family partnerships, LLCs, or investment accounts, often in combination with valuation discounts. They track total gifts per donee, coordinate with CPAs on Form 709 reporting when needed, and illustrate the long-term compounding impact of disciplined annual gifting supported by life insurance leverage. Understanding Section 2503(b) helps advisors explain why good documentation and consistent administration are essential to preserving the tax benefits of these present interest gifts.