Annual Exclusion

<div class="Section1">No. If joint action is required to exercise ownership rights in the policy, it is a gift of a future interest.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> <hr /><br /> <br /> <strong>Planning Point:</strong> If gifts of premiums are subsequently made by the donor they should be made separately to each donee and the donees may then pay the premiums to the insurance company. That way the gifts of premiums will qualify for the annual gift tax exclusion.<br /> <br /> <hr /><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.     <em>Skouras v. Commissioner,</em> 188 F.2d 831 (2d Cir. 1951).<br /> <br /> </div>

<div class="Section1">Both the insurance proceeds and the gift tax paid will be included in the gross estate.<a href="#_ftn1" name="_ftnref1">¹</a></div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.     IRC § 2035.<br /> <br /> </div>

<div class="Section1"><br /> <br /> A future interest is created when restrictions are placed upon the donee&rsquo;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 <a href="javascript:void(0)" class="accordion-cross-reference" id="159">159</a>).<a href="#_ftn1" name="_ftnref1">¹</a> (<em>But see</em> Q <a href="javascript:void(0)" class="accordion-cross-reference" id="160">160</a> for gifts in trust to minors.)<br /> <br /> A gift of a policy to a corporation is a gift of a future interest to its shareholders.<a href="#_ftn2" name="_ftnref2">²</a> 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.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; Treas. Reg. &sect;&nbsp;25.2503-3.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp;&nbsp; Rev. Rul. 71-443, 1971-2 CB 337.<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;&nbsp;&nbsp;&nbsp; <em>Wooley v. U.S.</em>, 90-1 USTC &para;&nbsp;60,013 (S.D. Ind. 1990).<br /> <br /> </div></div><br />

<div class="Section1">No.<a href="#_ftn1" name="_ftnref1">¹</a></div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.     Rev. Rul. 55-408, 1955-1 CB 113.<br /> <br /> </div>

<div class="Section1">The payment of premiums is a gift of a present interest if the gift of the policy was a present interest gift. Likewise, the premium is a future interest gift if the gift of the policy was a future interest gift ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="212">212</a>).<a href="#_ftn1" name="_ftnref1">¹</a><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; <em>Baer v. Commissioner</em>, &para;&nbsp;43,294 P-H TC Memo (1943), <em>aff&rsquo;d</em>, 149 F.2d 637 (8th Cir. 1945); <em>Roberts v. Commissioner</em>, 2 TC 679 (1943); <em>Commissioner v. Boeing</em>, 123 F.2d 86 (9th Cir. 1941); <em>Bolton v. Commissioner</em>, 1 TC 717 (1943).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> Yes, if the gifts are made in such manner that they are gifts of present interests.<br /> <br /> The annual exclusion of $19,000 in 2025 (up from $18,000 in 2024, $17,000 in 2023 $16,000 in 2022 and $15,000 in 2018-2021)<a href="#_ftn1" name="_ftnref1">¹</a>, is not available for gifts of future interests ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="219">219</a>). If the gift of the policy is a gift of a present interest, premiums subsequently paid by the donor also will qualify for the exclusion ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="223">223</a>). The annual exclusion is effectively $38,000 in 2024 (2 &times; $19,000) if the donor makes a gift to a third party with the consent of his or her spouse ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="117">117</a>). For gifts from one spouse to another, <em>see</em> Q <a href="javascript:void(0)" class="accordion-cross-reference" id="114">114</a>.<a href="#_ftn2" name="_ftnref2">²</a><br /> <blockquote><em>Example.</em> Donor, a widower, assigns a policy on his life to his son in 2025. The policy&rsquo;s value is $19,000. The gift tax annual exclusion of $19,000 (in 2025) can be applied against the gift of the policy. The donor may continue to pay the annual premium of $1,500 in subsequent years and need not report the premium payments for gift tax purposes so long as they fall within the gift tax annual exclusion for such subsequent year (unless he gives his son other gifts in any one year that together with the premium payments exceed the annual exclusion for such year).</blockquote><br /> When the value of a policy exceeds the annual exclusion, the insurance company may consent to split it into two or more smaller policies. By giving the donee one policy in each of several succeeding years, the entire value can fall within the annual exclusions. In some instances, however, such a split would result in a higher premium.<br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; Rev. Proc. 2017-58, Rev. Proc. 2018-57, Rev. Proc. 2019-44, Rev. Proc. 2020-45, Rev. Proc. 2021-45, Rev. Proc. 2022-38, Rev. Proc. 2023-34, Rev. Proc. 2024-40.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect;&nbsp;2503(b), Treas. Reg. &sect;&sect;&nbsp;25.2503-3(a), 25.2503-3(c)(Ex. 6).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> Yes.<br /> <br /> The exclusion can be applied against the value of the policy at the time of the gift and to subsequent premium payments.<a href="#_ftn1" name="_ftnref1">¹</a> An outright gift of a policy to a minor qualifies for the exclusion even though a guardian is not appointed.<a href="#_ftn2" name="_ftnref2">²</a> A gift of life insurance under a Uniform Gifts to Minors Act or a Uniform Transfers to Minors Act generally qualifies for the gift tax annual exclusion. All but a few states have modified the Uniform Act to include gifts of life insurance. Any transfer of property to a minor under statutes patterned after either the model act or the uniform act constitutes a complete gift for federal gift tax purposes to the extent of the full fair market value of the property transferred. Such a gift generally qualifies for the gift tax annual exclusion authorized by IRC Section&nbsp;2503(b).<a href="#_ftn3" name="_ftnref3">³</a> If the subject of the gift is life insurance, its &ldquo;full fair market value&rdquo; would presumably be established by the same rules applicable to gifts of life insurance generally ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="119">119</a>).<br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect;&nbsp;2503(b); Treas. Reg. &sect;&sect;&nbsp;25.2503-3(c)(Ex. 6), 25.2511-1(a), 25.2511-1(g).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp;&nbsp; <em>Baer v. Commissioner,</em> 2 TCM (CCH) 285 (1943), <em>aff&rsquo;d</em>, 149 F.2d 637 (8th Cir. 1945); Rev. Rul. 54-400, 1954-2 CB 319; <em>see Daniels v. Commissioner</em>, 10&nbsp;TCM (CCH) 147 (1951).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;&nbsp;&nbsp;&nbsp; Rev. Rul. 56-86, 1956-1 CB 449; Rev. Rul. 59-357, 1959-2 CB 212; Rev. Rul. 73-287, 1973-2 CB 321.<br /> <br /> </div></div><br />