Your client and her husband want to give $50,000 to each of their three adult children plus $30,000 to a grandchild whose mother is still living. You need to decide whether gift tax is owed, whether Form 709 is required, and whether the grandchild's check triggers GST.
Gift tax is a transfer tax on the donor for gratuitous lifetime transfers. The donee never pays. A gift exists when property moves for less than full and adequate consideration, with donative intent and completed delivery. The transfer must be complete (donor surrendered dominion and control). Incomplete transfers (revocable trusts, retained powers) become gifts only when control is released.
Statutory exclusions from gift treatment:
- Qualified tuition paid directly to an educational institution under §2503(e)
- Qualified medical expenses paid directly to a provider under §2503(e)
- Transfers to a U.S. citizen spouse (unlimited marital deduction, §2523)
- Transfers to a noncitizen spouse limited to $190,000 (2025) per year
- Transfers to qualifying charities (unlimited charitable deduction)
- Political contributions to qualifying organizations
Common mistakes
- Splitting community-property gifts on Form 709. Community property is already 50/50 by state law; gift-splitting adds nothing. Use the election only for separate-property gifts.
- Treating the $19,000 annual exclusion as per donor instead of per donee per donor. One donor can gift $19,000 each to 100 different donees and file no return.
- Assuming a contribution to a discretionary trust qualifies for the annual exclusion. Without a Crummey power or §2503(c) provisions, the gift is a future interest and Form 709 is required at any amount.
Bottom line
- 2025 annual exclusion: $19,000 per donee per donor, present interests only; the gift-splitting election doubles it to $38,000 for married couples
- Gift-splitting (§2513): requires both spouses' consent and applies to all gifts made that year; each spouse files a separate Form 709
- 2025 lifetime exemption: $13.99M per donor (credit equivalent $5,389,800), unified across gift and estate tax; a separate $13.99M GST exemption is allocated per donor
- Top transfer tax rate: flat 40% above the exemption for gift, estate, and GST
Exam shortcut
"Is Form 709 required?" Check four triggers: gift above $19,000 to one donee, gift-splitting election, future interest of any amount, or GST allocation. Any one trigger means file. Married couple gives a non-spouse donee in 2025: gift-splitting almost always wins. $38,000 sheltered per donee and two 709s required. Skip-person test: count generations from the donor. Two or more down equals skip.
The full lesson (about 2,629 words, 18 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- 1
- 2
- 3
Browse all free EA Part 1 lessons or jump into free EA Part 1 practice questions.