Every year, the IRS sets an amount of money that a gift-giver can give to a recipient free from taxes. That amount is called the annual exclusion.
In 2025, the annual exclusion is $19,000 per giver-receiver pair.
Contributions to 529 plans, Coverdell ESAs and UGMA / UTMAs are all treated as gifts, subject to annual exclusion amounts.
If you are contributing money to an irrevocable trust (such as an ILIT), that counts as using annual gift exclusions, too. The "receivers" are typically the beneficiaries of a trust.
Here are two different ways to maximize annual gift exclusions:
Example 1: Two parents give $38,000 to their child in 2025 ($19,000 annual exclusion * 2 gift-givers = $38,000 per recipient).
Example 2: Two grandparents have 3 grandchildren, and a single irrevocable life insurance trust ("ILIT") that lists the 3 grandchildren as equal beneficiaries. The grandparents contribute $57,000 / year to the ILIT, and $19,000 / year to a 529 plan for each grandchild.
If you want to keep your tax & financial life simple, just ensure that your gifts never exceed the annual exclusion amount. This way, you won’t owe any gift taxes or have any extra paperwork to file.
What happens if you gift more than the annual exclusion?
When you gift more than than annual exclusion, you generally need to file Form 709: United States Gift (and Generation-Skipping Transfer) Tax Return. You should work with your tax advisor to ensure you're doing this correctly.
There are a number of different reasons you might file a Form 709 and we won't get into all the detail here - we highly recommend consulting a professional tax advisor if you're contemplating potentially taxable gifts or filing a Form 709. If you are thinking about doing this, you should work with a qualified tax advisor and a estate planning attorney (which we are not - in this blog post, we're presenting general information for educational purposes).
If you're not availing yourself of a particular tax strategy, such as the 5-year accelerated gift to a 529 plan, you'll have the option to start "using up" a different type of exclusion: the basic exclusion amount. The basic exclusion amount is the amount of your estate that you can pass to others without incurring estate tax.
In 2025, the basic exclusion amount it $13,990,000 per person ($27,980,000 per married couple). This amount is set to be cut in half on January 1, 2026 unless current law changes by an act of Congress.
The basic idea is that the IRS will look at your would-be taxable gifts (the amount by which you exceed applicable annual exclusion amounts), then allow you to apply your basic exclusion amount and "use up" a portion of that amount during your lifetime.
For most people, that still means that they will not actually owe estate tax, because their net worth is still less than the basic exclusion amount.
Thinking about using some or all of your lifetime exemption?
When you have a taxable estate (or expect you likely will), it is best to consider your options with qualified advisors. Here at AboveBoard we can help you explore insurance strategies, and we highly recommend doing so in conjunction with an estate planning attorney and (if you have one) your financial advisor.
If you do not yet have an estate planning attorney you love working with, we are happy to offer ideas of candidates you can interview.
Get a life insurance quote to start exploring your options.
