{"id":287035,"date":"2016-04-04T11:02:20","date_gmt":"2016-04-04T16:02:20","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/estate\/planning-an-estate\/transfer-your-life-insurance-policy-to-lower-your-estate-tax.html"},"modified":"2025-09-03T11:22:00","modified_gmt":"2025-09-03T16:22:00","slug":"transfer-your-life-insurance-policy-to-lower-your-estate-tax","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/estate\/planning-an-estate\/transfer-your-life-insurance-policy-to-lower-your-estate-tax.html","title":{"rendered":"Estate Taxes and Life Insurance Transfers\u200b"},"content":{"rendered":"\n
\n

Estate Taxes and Life Insurance Transfers\u200b<\/h1>\n\n
\n
\n By Oni Harton, J.D.<\/a> | Legally reviewed by Catherine Hodder, Esq.<\/a>\n | Last updated\n
\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
\n

This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
\n

The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n

\n
\n
\n

Key Takeaways<\/h2>\n

Life insurance proceeds can impact your estate after you die. Transferring title and control of your life insurance policy to someone else or a life insurance trust will not count toward your estate after you die.<\/p>\n\n <\/div>\n <\/div>\n<\/div>\n\n\n

Keeping taxes in mind while estate planning can result in major tax savings. This tax planning could decrease the assets in your gross estate. That helps to eliminate the need to file an estate tax return during\u00a0the probate process<\/a>, when a court decides whether a will is valid.<\/p>\n

The\u00a0federal estate tax exemption<\/a> for 2025 is $13.99 million. Estates below the exemption level are not taxed when the owner dies. If your estate exceeds this limit, a life insurance transfer may be a helpful estate planning move.<\/p>\n

Three Preliminary Tax-Law Restrictions<\/h2>\n

There are a few tax rules to remember when transferring insurance policies for estate tax purposes.<\/p>\n

1. The Three-Year Rule<\/h3>\n

When transferring ownership of life insurance policies, the\u00a0three-year rule<\/a>\u00a0applies. Under this IRS rule, the transfer must: (1) take place within three years before the original owner’s death and (2) be made\u00a0without any consideration<\/a>. If both are the case, then the proceeds from the policy are counted in the\u00a0decedent<\/a>‘s estate for tax purposes.<\/p>\n

If you are considering transferring ownership of your life insurance policy, you should do so sooner rather than later. This can help ensure that three years pass before your death so the asset doesn’t count toward your estate.<\/p>\n

2. Retaining ‘Incidents of Ownership’<\/h3>\n

The person covered by a life insurance policy cannot keep any “incidents of ownership<\/a>” over the policy after a transfer. If they do, the IRS\u00a0will count the policy as part of their estate<\/a>\u00a0for tax purposes. Incidents of ownership exist if, after a transfer, the covered person retains the power to do any of the following:<\/p>\n