219 / When is the gift of a life insurance policy considered the gift of a future interest that deprives the donor of the gift tax annual exclusion?
A future interest is created when restrictions are placed upon the donee’s right to receive benefits or to exercise ownership rights under the policy. The gift of a policy is not considered a gift of a future interest merely because the obligations under the contract are payable at some time in the future. However, a future interest in these contractual obligations can be created by limitations contained in a trust or other instrument of transfer used in effecting a gift ( Q 159).1 (But see Q 160 for gifts in trust to minors.)
A gift of a policy to a corporation is a gift of a future interest to its shareholders.2 In one case, gifts made to individual partnership capital accounts were treated as gifts of a present interest that qualified for the gift tax annual exclusion because the partners were free to make immediate withdrawals of the gifts from their capital accounts.3
1. Treas. Reg. § 25.2503-3.