Tax Facts

158 / If a grantor creates a revocable trust with a life insurance policy on the life of another person and names third parties as trust beneficiaries, is a gift made when the insured dies and the trust becomes irrevocable?

Updated: October 21, 2026 at 11:19 PM
Yes. In one case, a wife placed a policy on her husband's life in a revocable trust for their children. It was held that a gift from the wife to the children was made when the insured died and the trust became irrevocable. The value of the gift was the full amount of the death proceeds.1 If the trust had been irrevocable, the annual premiums paid by the wife, instead of the proceeds, would have constituted gifts.2





1.     Goodman v. Commissioner, 156 F.2d 218 (2d Cir. 1946).

2.     Watkins v. Commissioner, 2 TCM (CCH) 252 (1943).

Tax Facts Premium Tools
Calculators
100+ calculators specifically designed to help you easily assist clients with specific planning situations and calculations.
Practice Guidance
Designed to help you discover new ways for which to build and maintain client relationships.
Concepts Illustrated
Specifically designed to help you easily assist clients with specific planning situations and calculations.
Tax Facts Archives
Access to the entire library of Tax Facts dating back to 2012 allowing you to look up the exact tax figures from prior years.