Gifting Vested RSUs: The Annual Exclusion Question

A senior engineer has vested $400K of employer stock that she wants to start moving out of her estate. Her oldest daughter is 14, her son is 12, and she also wants to give to her parents. Her estate is $8M currently, below the federal exemption but she’s planning for potential growth.

The simplest tool: annual exclusion gifts. In 2025, a donor can give $18,000 per donee per year without using any lifetime exemption. With her husband’s gifts (doubled to $36K per donee), and 4 potential donees (2 kids, 2 parents), the couple can transfer $144K per year with no lifetime exemption used.

At this pace, over 10 years, $1.44M moves out of the estate without touching exemption. Not life-changing for $8M estate, but meaningful for systematic reduction.

For larger transfers, the annual exclusion is too small. But for recurring small-to-medium transfers, it’s powerful.

The 2025 annual exclusion

IRC §2503(b) provides an annual gift tax exclusion. For 2025, the amount is $18,000 per donee per donor per year. Gifts within the exclusion amount:

Don’t use lifetime exemption.
Don’t require gift tax return (Form 709) filing.
Are not reported on any tax form (for the donee).
Do reduce the donor’s estate.

For a married couple, each spouse has an independent exclusion. Gift-splitting under IRC §2513 allows the couple to treat all gifts as made half by each spouse. Combined 2025 amount per donee: $36,000.

Eligible donees

Annual exclusion applies to gifts to any individual donee. Common donees:

Children (direct or via minor trusts).
Grandchildren.
Spouses (but spousal gifts have unlimited exemption anyway; annual exclusion irrelevant).
Siblings.
Parents.
Unrelated individuals.

Gifts to trusts must meet specific requirements to qualify for annual exclusion. The trust must give the beneficiary a “present interest” in the gift. “Crummey powers” (right for beneficiary to withdraw the gift for a specified window) are the classic technique.

Gifting RSU stock vs gifting cash

Gifting vested stock directly:

Donor gifts stock (transferring ownership on stock plan administrator’s books).
Donee receives stock with carryover basis from donor.
Gift valued at FMV on gift date.
If stock appreciates after gift, appreciation is in donee’s hands (out of donor’s estate).
Donee sells, pays capital gain on difference between sale price and donor’s basis.

Gifting cash after selling:

Donor sells stock; pays capital gain tax at sale.
Donor gifts cash to donee.
Donee has cash at donor’s basis (of $0 for cash).
Donee uses cash as desired.

For highly appreciated stock, gifting stock directly preserves the basis for the donee who might be in a lower tax bracket. For minor children (kiddie tax) and low-income beneficiaries, stock gifting can be especially tax-efficient.

The kiddie tax

IRC §1(g) (kiddie tax) taxes unearned income of children at parent’s marginal rate. Applies to:

Children under age 18 (standard).
Students under 24 (extended).
Disabled children (indefinite).

For a child receiving gifted stock that generates dividend income, kiddie tax applies. Capital gains on the child’s sale of stock are also subject to kiddie tax if the child’s total unearned income exceeds the threshold ($2,700 for 2024/2025).

Kiddie tax can neutralize some of the tax advantage of gifting to children. Planning: gift stock that will be held for long periods (so appreciation happens without current kiddie-tax events) and is sold at child’s later adulthood when kiddie tax doesn’t apply.

Common structures for larger annual gifts

Direct stock transfer. Donor moves shares from their account to donee’s account. Simple. Works well for public company stock with easy transfer mechanics.

529 plan contributions. Annual gift exclusion can fund 529 college savings accounts. Five-year front-loading allowed under IRC §529(c)(2)(B): donor can give 5 years of exclusion amount ($90K per donee) at once, treated for gift tax purposes as spread over 5 years.

UTMA/UGMA accounts. Minor child’s custodial account. Gifts to UTMA are annual-exclusion eligible. Child receives full control at age of majority (18-21 depending on state).

Crummey trusts. Irrevocable trust with Crummey powers. Gift to trust is annual-exclusion eligible if properly structured. Trust provides better asset protection than UTMA and allows grantor to retain influence over distributions.

The Form 709 filing threshold

Gifts exceeding the annual exclusion amount ($18K per donee for 2025) require filing Form 709 (gift tax return). The return:

Reports the gift amount.
Allocates lifetime exemption usage.
Allocates GST exemption if applicable.

Form 709 is due April 15 of the year following the gift (extendable to October 15).

For small annual exclusion gifts within the limit, no Form 709 required. For married couples using gift-splitting (combining $36K of exclusion), Form 709 is required even if total gifts are under the per-donee amount.

Comparison: gifting structures

Structure	Annual limit	Control	Asset protection	Tax efficiency
Direct gift to adult child	$18K/$36K (couple)	Loss of control	Child’s creditor risk	Good
UTMA custodial account (minor)	$18K/$36K	Lost at age of majority	Minor’s creditor risk	Good
529 plan (front-loaded)	$90K/$180K per 5 years	Donor retains control	Good	Excellent for education
Crummey trust	Varies; $18K per beneficiary	Donor via trust terms	Strong	Good
Grantor retained annuity trust (GRAT)	N/A; different vehicle	Limited	Strong	Excellent for appreciating assets

The 2026 sunset and annual exclusion

The 2025 $18,000 annual exclusion continues into 2026. The annual exclusion is inflation-indexed and adjusts slightly each year. 2026 annual exclusion estimated: approximately $19,000 (verify when IRS releases).

The lifetime exemption sunset (see separate article) does not affect the annual exclusion. Annual gifts within the exclusion remain tax-free regardless of sunset.

Tax efficient gifting of appreciated stock

For a high-net-worth family:

Gift stock, not cash. Appreciated stock in donor’s hands is “pre-taxed” for capital gains. Donating cash means donor realized the gain.
Gift long-term positions to low-income donees. If child is in 0% or 15% LTCG bracket, donee’s sale is taxed at lower rate than donor’s would be.
Coordinate with education expenses. Tuition and medical expenses paid directly to provider are not gifts under IRC §2503(e). Unlimited amounts can be paid without using exclusion or exemption.
Use annual exclusion strategically. Fund Crummey trusts at year-end, 529 plans, UTMAs to max available exclusion across all donees.
Gift before sunset for bigger transfers. Annual exclusion is unaffected by sunset, but lifetime exemption is; combine annual exclusion with lifetime exemption gifts before year-end 2025.

Frequently asked

Can I gift options or unvested RSUs? Unvested RSUs and unexercised options generally cannot be gifted (they’re contractual rights that stay with the employee). Vested stock that’s been delivered to the employee can be gifted.

What if I gift stock and my employer has transfer restrictions? Company stock plans may restrict transfers even of vested stock. Check the plan document. Secondary market transactions (tender offers) may be the only path for some plans.

Does my employer need to know about the gift? For pure gift transfers, the employer isn’t usually involved. For transfers of stock subject to specific plan rules, administrator or employer consent may be needed.

Do I need a qualified appraisal for a stock gift? Not for publicly traded stock (use closing price or average of high/low). Private company stock gifts over $5,000 require qualified appraisal.

What if my gift exceeds $18K due to valuation uncertainty? Document your valuation methodology. If later proven higher, you may have used lifetime exemption without filing Form 709; amended return may be needed.

Next step

If you have appreciated stock and want to start transferring wealth, calculate your annual exclusion capacity for this year: number of donees × $18K × (1 or 2 for married). Set up recurring transfers (529 contributions, UTMA deposits, trust contributions). Combine with lifetime exemption gifts before the 2025 sunset if your estate warrants it. Engage estate counsel for amounts significantly above the annual exclusion.