Fortunately, not all gifts are subject to gift tax. A properly drafted ILIT will avoid gift tax by taking advantage of the $19,000 per year (2025 amount) "present-interest exclusion." Outright gifts of cash to your children clearly qualify for the $19,000 per year present-interest exclusion. If an ILIT is used, however, the rules are more complex. The $19,000 per year gift tax exclusion is available only for gifts that qualify as "present interests." Gifts to trusts are usually treated as gifts of a future interest, which do not qualify for the exclusion. To avoid this problem, most ILITs contain "withdrawal rights." By giving each beneficiary of the ILIT the present right to withdraw the amount of any gifts made to the ILIT (up to $19,000 per beneficiary per year), those gifts qualify as present-interest gifts, which are not subject to gift tax. (Note that if you intend for the funds in the ILIT to be excluded from estate taxation in your children's estates, a gift tax return should nevertheless be filed to enable you to allocate a portion of your "generation-skipping transfer tax" exemption to transfers made to the ILIT.)