INSURANCE AT DEATH

I have repeatedly stated that insurance proceeds ARE included in an estate when one dies if you (as the deceased) retain any incidents of ownership. One way is to have your kids buy the policy, but another method might include this- AND IT REALLY BACKFIRES. Assume the spouse uses SEPARATE assets to buy a policy on her spouse thereby keeping the proceeds out of her husband's estate when he dies. The proceeds go directly to the beneficiary/kids. While true that the life insurance (say $300,000) will not be included in the husband's estate, the wife may be construed to have made a GIFT of $300,000 to the children. So now her lifetime exemption of $675,000 is reduced by the $300,000 gift thereby resulting in a possible severe estate tax when she dies. And should the kids try to give money back to mom, they will ALSO be construed to give a gift (anything over $10,000 per year) and they will incur a reduction of their lifetime exclusion as well.