Insights

The annual exclusion gift is one of the most effective ways to support loved ones and transfer wealth, yet it remains one of the most commonly misunderstood strategies. On the surface it looks straightforward. You can give a certain amount each year to anyone you choose and not worry about taxes. Underneath, there are important rules and opportunities that can make a meaningful difference for your family and your future estate tax picture.

This article walks through how the current $19,000 annual exclusion works, why it still matters in a world with very high federal estate tax exemptions, and the most common strategies we see families use around education, children, and grandchildren.

What Is the $19,000 Annual Exclusion Gift?

The annual exclusion is the amount you can give to another person each calendar year without using any of your lifetime estate and gift tax exemption and without filing a gift tax return.

For 2025, that amount is $19,000 you can give to each recipient. Your spouse can also give to that same recipient.

In other words, a married couple can give up to $38,000 per person every year and stay fully within the annual exclusion. You can repeat this for as many people as you like. Children, grandchildren, other relatives, friends, or anyone else.

These annual exclusion gifts are not taxable to you. They are not taxable to the recipient. They do not reduce your lifetime exemption. For most families, they are simply a clean and efficient way to move money out of their estate while helping people they care about.

A Common Misunderstanding: Are Larger Gifts Taxable?

One of the most common points of confusion we see is what happens when you give more than $19,000 to someone in a year.

If you give more than $19,000 to any one person in a year, you must file a gift tax return to report the excess amount. This return is primarily a tracking form. It tells the IRS that you chose to use a portion of your lifetime exemption.

There are two key points people often miss:

• In most cases the return is administrative. It does not mean you owe a tax.
• The recipient does not file anything and does not pay any tax on the gift.

You only pay gift or estate tax if your total lifetime reportable gifts plus your taxable estate at death exceed your lifetime exemption. For most families, that is a very high bar. Understanding this distinction often clears up a lot of anxiety around gifting.

Why the Annual Exclusion Still Matters with a $15 Million Exemption

With the passage of the recent “Big Beautiful Bill,” the federal estate tax exemption is scheduled to be $15 million per person or $30 million for a married couple in 2026. That is a very generous amount. At first glance, it may feel like estate planning and gifting only matter to a very small slice of households. However, the annual exclusion still plays an important role.

First, it keeps planning simple. Staying within the $19,000 amount for each person each year means no additional tax forms and no spend of your lifetime exemption. For families who like to keep taxes straightforward, this is appealing.

Second, tax rules can change. Before the Big Beautiful Bill, the exemption was actually scheduled to be cut roughly in half. While the current law extended and increased the exemption, there is no guarantee that future Congresses will leave it untouched.

Third, your wealth can grow faster than the exemption. A $10 million estate today does not sit still over the next 10, 20, or 30 years. Investment growth, real estate, and business interests can all push your total net worth higher. The annual exclusion provides a way to steadily move assets to the next generation during your lifetime.

Lastly, many states have their own estate or inheritance taxes with much lower exemption amounts. Since many states do not track lifetime gifts, annual exclusion gifting can be especially helpful in reducing future state level estate taxes.

How Quickly Annual Exclusion Gifts Can Add Up

It is easy to look at $19,000 and think it is helpful but not transformative. Where the power really shows up is when you look across years and across multiple family members.

Consider a married couple with two adult children, each of whom is married, and two grandchildren.

In a single year, they could give $38,000 to each child and $38,000 to each child’s spouse. They can also give $38,000 to each grandchild. In total, this can move well over $100,000 out of their estate in one year, all within the annual exclusion limits.

Spread those gifts across a number of years, invested and compounded, and you can begin to see how impactful this simple strategy becomes in shifting wealth to children and grandchildren while also managing future estate tax exposure.

Some extended families also coordinate cross gifting so that aunts, uncles, and grandparents each use their own annual exclusion to support the same beneficiaries. When structured thoughtfully, the math adds up quickly.

Gifting for Education and 529 Plans

Education support is one of the most common reasons families use the annual exclusion, and the tax code offers two powerful ways to do so efficiently.

First, certain payments fall entirely outside the $19,000 limit. If you pay tuition directly to a school or pay medical expenses directly to a hospital, clinic, or insurer, those payments are not treated as gifts. They do not use any of your annual exclusion or lifetime exemption, and there is no dollar cap. (Tuition applies only to academic charges and not room and board.)

For broader education funding, 529 college savings plans are one of the most effective long-term gifting tools. Contributions qualify for the $19,000 annual exclusion, grow tax free, and can be used for a wide range of education expenses including tuition, room and board, and technology needs such as a computer.

Families who want to front load education support can use the five-year “super funding” election, allowing up to $95,000 per donor or $190,000 per married couple to be contributed at once and treated as if spread evenly over five years. This requires a gift tax return to make the election, but it does not use lifetime exemption as long as no additional gifts are made to that beneficiary during the five-year period.

This can be one of the most effective ways to make a large, tax-efficient education gift that immediately begins compounding for future costs.

Gifting to Children and Grandchildren Outside of 529 Plans

Not all gifts are meant to be used only for education. Many families want to give children or grandchildren a more flexible pool of assets for future needs. Two common tools we see are custodial accounts and trusts.

Custodial Accounts (UTMA or UGMA)

Uniform Transfers to Minors Act (UTMA) and Uniform Gifts to Minors Act (UGMA) accounts allow an adult to manage assets on behalf of a minor. The accounts are opened in the child’s name, but a custodian controls the investments and withdrawals until the child reaches the age of majority.

In some states (including Washington) you can elect to delay control until age 25, which can provide more flexibility for families that want a little more maturity before turning over the account.

Annual exclusion gifts can be made directly into these accounts. They are simple to set up and work well for modest sized gifts.

Trusts for Added Structure and Control

As gifting amounts grow larger, some families decide to establish a trust instead. Trusts can be designed so that gifts still qualify for the annual exclusion, while also:

• Delaying when the beneficiary gains full control
• Setting expectations for how the funds may be used
• Providing protection from creditors, divorce, or other risks
• Allowing the trust to continue for multiple generations

Trusts introduce more complexity, so this is usually a step you take in coordination with your estate planning attorney and financial planner. For families that are committed to long term annual exclusion gifting, they can be a very effective structure.

Bringing It All Together

The $19,000 annual exclusion gift is a straightforward rule with a lot of planning power behind it. Used thoughtfully, it allows you to:

• Help children and grandchildren during your lifetime
• Fund education in a tax efficient way
• Gradually reduce the size of a future taxable estate
• Keep your planning simple and manageable from a tax standpoint

Even in an environment where the federal estate tax exemption is scheduled to be $15 million per person in 2026, annual exclusion gifting remains a valuable and often underused tool.

If you are considering starting or increasing a gifting strategy, it can be helpful to coordinate this with your broader financial and estate plan. Reviewing your goals, cash flow, and state specific rules with a financial planner and estate planning attorney can help you design an approach that supports the people you care about while also making the most of the available tax rules.

We love to help! Schedule a time with one of our Certified Financial Planners® today to discuss your gifting strategy.

You may also want to watch our recent deep dive into 2025 Tax Law Changes & Year End Planning!

team@stablerwm.com | (425) 646-6327

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No strategy assures success or protects against loss.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.​

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

Securities and Advisory services are offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC. Stabler Wealth Management is not registered as a broker-dealer or investment advisor.