A grandmother writes $25,000 checks to each of her four grandchildren for college. Her accountant calls: she just used $24,000 of lifetime exemption and owes Form 709 on every check. Had she sent $6,000 of tuition straight to each school and given the remaining $19,000 in cash, every dollar would have transferred tax-free.
HIGH-FREQUENCY: The annual exclusion ($19,000/donor/donee in 2026), gift splitting, and Form 709 filing requirements appear on virtually every gift tax question.
A donor may give up to $19,000 per donee per year without filing Form 709 and without reducing the lifetime exemption. No limit on the number of donees, a parent with three children transfers $57,000 annually.
Gift splitting doubles the power for married couples. The couple elects on Form 709 to treat a gift as though each spouse made half, $38,000 per donee per year even when only one spouse funds the gift.
TRAP: Gift splitting requires Form 709 even when no tax is owed and no exemption is used. Giving from a joint account does not automatically constitute gift splitting, the formal...
Common mistakes
- Forgetting Form 709 for gift splitting. The filing requirement is triggered by the election itself, not by tax liability. A couple giving $30,000 to one donee with gift splitting owes no tax ($15,000 each, under $19,000), but must still file. Trap: "no filing required."
- Applying 2503(e) to room and board. Only tuition paid directly to the institution qualifies. Trap: a grandparent pays $75,000 "to the university" but $25,000 is room and board, only $50,000 qualifies. The $25,000 falls under regular gift tax rules.
- Assuming trust gifts qualify for the annual exclusion without Crummey powers. A $19,000 contribution to an irrevocable trust without Crummey powers uses $19,000 of lifetime exemption. The annual exclusion does not apply to future interests.
Bottom line
- Annual exclusion = $19,000/donor/donee; gift splitting doubles it to $38,000 and always requires Form 709, even when no tax is owed
- Applicable exclusion amount (lifetime exemption) = $15,000,000/person, unified with the estate tax
- Direct tuition/medical under 2503(e) = unlimited, no Form 709, stacks with the annual exclusion; only tuition paid directly to the institution qualifies (not room and board)
- Crummey power converts trust gifts from future interest to present interest, required for the annual exclusion unless the trust qualifies under 2503(c)
Exam shortcut
When a question asks how to maximize gift-tax-free transfers, stack every exclusion: annual exclusion with gift splitting ($38,000/donee), plus direct tuition (unlimited), plus direct medical (unlimited). These are cumulative, not alternative. "Gift Gives Basis, Death Deletes Gain", gifted property carries the donor's basis (gain survives); inherited property steps up (gain vanishes). For trust questions: no Crummey = no exclusion. "Crummey = Currently available."
The full lesson (about 2,865 words, 19 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- B.16
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