Tax Facts

215 / Does a taxable gift occur when a donor spouse assigns community property life insurance to a donee spouse?

Generally, no. The assignment qualifies for the unlimited marital gift tax deduction applicable to interspousal gifts, even though the policy is community property.1 (The assignment is actually of the donor spouse’s one-half community property interest, because the donee spouse already owns the other one-half.) An annual exclusion may be allowed instead of the marital deduction if the donee spouse is a non-U.S. citizen.

1. IRC § 2523.

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