Life Insurance

If you're trying to reduce the amount of your wealth that will be subject to the unified transfer tax by making lifetime gifts, giving away a life insurance policy can be an excellent strategy. Life insurance exemplifies the type of asset that can be expected to greatly appreciate in value. It may be worth relatively little while you are alive (particularly if it's term insurance, which has no cash value), but once you die, its value balloons.

Because of the great potential for unified transfer tax savings with this strategy, there are rules that limit it. First, you must not retain a significant degree of control (called an "incident of ownership") over the policy transferred. Second, to keep the policy's value out of your gross estate, you must have transferred the policy more than three years before your death.

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