179 / If policies on an insured's life are placed in an irrevocable life insurance trust, are the proceeds includable in the estate?

Ordinarily, they are not.¹ The proceeds will be included in the insured’s gross estate, however, if the insured retains any incident of ownership in the policy at the time of death, whether the ownership right is exercisable by the insured alone or only in conjunction with another person ( Q 81).² Even though the insured has assigned the policy to the trustee, the proceeds will be included in the insured’s gross estate if, under the terms of the trust instrument, the insured has a right to the cash surrender values.³ The mere right to give investment advice, in the case of a funded trust, is not considered an incident of ownership in the policy.⁴ See Q 96 for tax results where the trust was established within three years of death, or the insured paid premiums within three years of death. For a discussion of whether the right to control payment of the proceeds when such right is held by the insured as trustee is an incident of ownership, see Q 88.