Annual Exclusion Gifting Program

The IRS allows every person to give up to $19,000 per year to every other person completely free of gift tax — and without touching any of their $15 million lifetime exemption. This "annual exclusion" resets every January 1 and does not carry forward. Use it or lose it, every year.

A married couple can combine their exclusions, giving $38,000 per year to each recipient. A couple with four adult children and four spouses of those children can remove $304,000 from their estate each year — $6.08 million over 20 years — with zero gift tax and zero lifetime exemption consumed. Those assets, along with all the appreciation they would have generated inside the estate, are permanently gone from the taxable estate.

The annual exclusion is not the only type of tax-free transfer available. Three additional categories are completely excluded from gift tax — in any amount — completely separate from the $19,000 annual exclusion:

Direct tuition payments: You can pay any educational institution directly for another person's tuition — any amount, any institution, any level of education — and it is completely excluded from gift tax. A grandparent paying $65,000 per year in college tuition directly to the university owes no gift tax and uses no exemption. The check must be made out to the institution, not the student.

Direct medical payments: Payments made directly to a hospital, physician, pharmacy, or health insurance company for another person's medical expenses are completely excluded in any amount. Again, payment must go directly to the provider.

529 superfunding: You can front-load five years of annual exclusions into a 529 education savings account in a single year — $95,000 per person, $190,000 per couple — and elect to treat it as if made over five years for gift tax purposes. The account grows free of federal income tax when requirements are met and qualified distributions for education expenses are tax-free at withdrawal.

When gifts are made of Family Limited Partnership interests rather than cash or direct securities, the annual exclusion goes significantly further. Minority interests in an FLP — which lack control and cannot easily be sold — qualify for valuation discounts of 20–35% for gift tax purposes.

A couple gifting $38,000 of FLP interests to each of eight recipients makes $304,000 of taxable gifts. But at a 30% valuation discount, those interests represent $434,000 of actual economic value. The annual exclusion effectively transferred $130,000 more in real wealth than the taxable gift amount suggests. Over 20 years, the FLP multiplier can add millions to the total estate reduction achieved through the annual gifting program.

Annual gifting strategy design and recipient identification. Gift calendar management and deadline tracking. Crummey notice drafting and documentation for any trust contributions. FLP appraisal coordination and review. Form 709 preparation when required. FLP partnership return preparation reflecting new partners. Cumulative lifetime gift tracking and remaining exemption monitoring. Direct tuition and medical payment documentation.

Values FLP interests each year that FLP interests are gifted. Must be a qualified appraiser meeting IRS standards — not an internal estimate and not a prior year's appraisal. We coordinate this engagement and review the appraisal for compliance before it is attached to the gift tax return.

Execute the transfers by December 31. Write tuition checks to the institution directly, not to the student. Verify that securities transfers settle and FLP records are updated. Once the program is designed, execution becomes largely mechanical — we manage the calendar and coordinate the moving parts. Your role is to execute the transfers on schedule and contact us if circumstances change (new grandchildren, changes in family situation, new assets to consider for gifting).