212 / Do premiums gratuitously paid on life insurance owned by and payable to another constitute gifts?
Generally, yes. If an individual pays a premium on a life insurance policy in which he or she has no ownership rights, the individual has made a gift of the premium.1 Where, for example, a wife paid premiums on a policy owned by her husband and payable to his estate, she was held to have made a gift to her husband even though she had a contingent interest in the policy as a beneficiary of his estate. Under present law, however, such a gift would qualify for the unlimited marital deduction ( Q 114).2 A gift of premiums may qualify for the gift tax annual exclusion ( Q 218).
Ordinarily the premium payer will be considered the donor. However, where an employee assigned his group life insurance policy to an irrevocable trust he had created for his beneficiary, the IRS ruled that premiums subsequently paid by the employer were gifts from the employee to the trust.3 (See also Q 154, Q 159.)
1. Commissioner v. Boeing, 123 F.2d 86 (9th Cir. 1941).