In order to avoid inclusion of the proceeds of life insurance policies in the gross estate for federal estate tax purposes, policies are often transferred by gift during life. If transferred more than three years before death, the proceeds are ordinarily not included in the gross estate. However, assignment of a life insurance policy without retaining incidents of ownership constitutes a gift for federal gift tax purposes. Payment of life insurance premiums on a policy owned by another is a gift of the premium amount.
Harl, Neil E.
"Transferring life insurance policies by gift,"
Agricultural Law Digest: Vol. 4
, Article 1.
Available at: http://lib.dr.iastate.edu/aglawdigest/vol4/iss8/1