The annual gift tax exclusion amount allows you to make gifts of up to $13,000 per year to any number of donees with no liability for federal gift or estate taxes. These gifts do not count against your federal estate tax exclusion (because the assets are given as gifts and are therefore no longer considered to be part of your estate). If however, you give any one individual more than $13,000, the excess amount will count against your lifetime gift tax exclusion. In 2010, the lifetime gift tax exclusion was $1m. There are several ways to use the annual gift tax exclusion including cash gifts, gifts of other property, and gifts to trusts.

The annual gift tax exclusion is generally used by couples and individuals who are comfortable with the amount of their wealth and are willing to give up the use and enjoyment of some of it during their lifetimes. It is also used by married couples with assets in excess of their combined federal exclusion amount, or single individuals with assets in excess of the federal exclusion amount, who want to minimize the impact of federal estate taxes on their excess assets. In addition, the annual exclusion is sometimes used by married couples who want to avoid federal estate taxes, but they do not want to bother using a credit trust. These couples monitor their wealth closely and make annual gifts that keep their combined wealth from increasing above the federal estate tax applicable exclusion amount.

If gift taxes apply, you must file Form 709: U.S. Gift (and Generation-Skipping Transfer) Tax Return.