Which statement about the application of the annual gift tax exclusion is correct?

Which statement about the application of the annual gift tax exclusion is correct?

• A. It applies per donor.
• B. It applies per donee.
• C. It applies only at death.
• D. It applies to all gifts automatically.

Answer: (B)

The annual gift tax exclusion is applied per donee. This means for each individual you gift to in a year, you can give up to the exclusion limit without owing gift tax or using up part of your lifetime exemption. You can multiply this by giving to multiple people, with every recipient having their own separate exclusion amount. It isn’t limited to transfers at death, since gifts made during life can be sheltered by the exclusion. And it isn’t automatic for all gifts—any gifts exceeding the limit to a particular person are taxable gifts (and may require filing a gift tax return). That per-donee limit is why this statement is correct.

The annual gift tax exclusion is applied per donee. This means for each individual you gift to in a year, you can give up to the exclusion limit without owing gift tax or using up part of your lifetime exemption. You can multiply this by giving to multiple people, with every recipient having their own separate exclusion amount. It isn’t limited to transfers at death, since gifts made during life can be sheltered by the exclusion. And it isn’t automatic for all gifts—any gifts exceeding the limit to a particular person are taxable gifts (and may require filing a gift tax return). That per-donee limit is why this statement is correct.