91 / Can an insured remove existing life insurance from the insured’s gross estate by an absolute assignment of the policy?

Yes, assuming the insured lives for at least three years after the assignment ( Q 96), the insured assigns all incidents of ownership, and the assignee is not legally obligated to use the proceeds for the benefit of the insured’s estate.¹

If the form of the assignment reserves any incidents of ownership to the insured, the proceeds may be included in the insured’s gross estate despite the insured’s clear intention to transfer all ownership rights.² It has been held that where the insured had paid no premiums and had never treated the policy as the insured’s own, the insured’s irrevocable designation of beneficiaries and mode of payment of proceeds was an effective assignment of all of the insured’s incidents of ownership in the policy.³ The amount of any premiums paid on the assigned policy by the insured may be included to the extent they are paid within three years of death ( Q 96). (For indirect possession of incidents of ownership, see Q 86, Q 179, and Q 319. See Q 175 for information on the assignment of group term insurance coverage.)