The IRS Lets You Give Away $38,000 a Year for Free. Are You Using It?

04/15/2026 | Million Pebbles | Uncategorized

5 min read

Imagine handing $38,000 to your kids or grandkids every single year — completely tax free. No gift tax. No estate tax. No complicated trust structure. No forms to file. Just a clean, legal transfer of wealth that compounds in their hands instead of sitting in yours waiting to be taxed.

Most families who could be doing this aren’t. Not because it’s complicated, but because nobody ever told them it was this simple.

The annual gift tax exclusion is one of the most underused tools in personal financial planning — and if you have meaningful assets you’d like to pass on someday, it deserves a serious look.

Here’s how it actually works

Every year, the IRS lets you give money to as many people as you want without any gift tax consequences — as long as you stay under a certain amount per person. In 2025, that limit is $19,000 per recipient. You don’t need to file a gift tax return. There’s no paperwork beyond writing a check or making a transfer. And on January 1st, the clock resets and you can do it all over again.

If you’re married, it gets even better. You and your spouse can each give $19,000 to the same person — a strategy called gift-splitting — bringing the combined annual exclusion to $38,000 per recipient per year. You don’t even need to give from a joint account. You just both need to consent, which is documented on a simple IRS form if your gifts exceed the individual limit.

The math gets really interesting when you zoom out

Let’s say you and your spouse have three adult children and four grandchildren — seven recipients in total. At $38,000 per person, you can transfer $266,000 per year completely free of gift tax. Do that for ten years, and you’ve moved $2.66 million out of your taxable estate — along with all the future growth on that money.

That’s not a tax loophole. That’s exactly what the law was designed to allow. And it’s available to anyone, not just the ultra-wealthy.

What most people don’t realize about tuition and medical bills

Here’s where the annual exclusion gets even more powerful — and where most people leave serious money on the table.

Direct payments made to an educational institution for tuition are excluded from gift tax entirely, regardless of the amount. This is completely separate from the annual exclusion. You can pay $60,000 in college tuition for a grandchild directly to the university and it doesn’t count against your $19,000 annual exclusion at all. Same goes for direct payments to medical providers for someone else’s healthcare costs.

A grandparent who pays tuition directly and also makes annual exclusion gifts can transfer hundreds of thousands of dollars in a single year without any gift tax exposure whatsoever. Most families never think to combine these strategies.

Why this matters even more right now

The federal estate tax exemption is currently at a historically high level — over $13 million per individual in 2025. But that elevated exemption is scheduled to drop significantly after 2025 unless Congress acts to extend it. If that happens, families who have been assuming their estate won’t be subject to estate taxes may find themselves in a very different situation.

Using the annual exclusion consistently now is one of the simplest ways to reduce your taxable estate gradually, without making irrevocable decisions, without complex legal structures, and without giving up control of your finances.

A few things worth knowing before you start

Gifts above the annual exclusion aren’t automatically taxed — they reduce your lifetime gift and estate tax exemption, which currently sits at $13.61 million per person. Only when cumulative taxable gifts exceed that lifetime amount does an actual gift tax arise. So even large gifts rarely result in tax being owed today.

That said, gifting strategy works best when it’s coordinated with the rest of your financial plan. Gifts of appreciated stock, for example, can be more tax-efficient than cash in certain circumstances. Gifts to irrevocable trusts can provide additional control and asset protection. And the timing of gifts relative to potential changes in estate tax law can affect their long-term value significantly.

This is exactly the kind of planning that looks simple on the surface but rewards having a thoughtful advisor in your corner — someone who can look at the full picture and make sure the pieces fit together.

The bottom line

The annual gift tax exclusion is free money, in the sense that it’s value you can transfer to the people you love without the government taking a cut. The only thing required is using it — consistently, strategically, and with a plan.

If you’ve never had a real conversation about how gifting fits into your wealth and legacy plan, that’s a great place to start.

Schedule a complimentary consultation with our Colorado Springs team. We work closely with clients’ estate planning attorneys and tax professionals to make sure gifting strategies actually fit the broader picture.