"been in excess of the annual exclusion. The giver has been aware of the gift exclusion"

Based on that, I would file zero returns because the client would no longer be my client if they were intentionally not filing required tax returns. :-)

Most likely, all years should be filed. You could call the IRS for confirmation, but I can't imagine them saying to only file a certain number of years (because it is based on a Lifetime amount).

Is suspect there would not be a penalty, as the penalty is the same as Individual tax - based on the amount owed (which is $0 for the Gift Tax returns). However, I suspect they hypothetically might be able to apply the undervaluation penalty, but I doubt if they would.