Tax Facts

158 / If a grantor creates a revocable trust with a life insurance policy on the life of another person and names third parties as trust beneficiaries, is a gift made when the insured dies and the trust becomes irrevocable?

Yes. In one case, a wife placed a policy on her husband’s life in a revocable trust for their children. It was held that a gift from the wife to the children was made when the insured died and the trust became irrevocable. The value of the gift was the full amount of the death proceeds.1 If the trust had been irrevocable, the annual premiums paid by the wife, instead of the proceeds, would have constituted gifts.2

1. Goodman v. Commissioner, 156 F.2d 218 (2d Cir. 1946).

2. Watkins v. Commissioner, 2 TCM (CCH) 252 (1943).

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