216 / If one spouse uses community property to purchase life insurance on either spouse's life and names a child as beneficiary, does the death of the insured spouse give rise to a taxable gift from the noninsured spouse?

Perhaps. If under state law the insured spouse's death makes the transfer of the noninsured spouse's community interest absolute, a gift will be imputed to the noninsured spouse of half the amount of the proceeds of such insurance payable to the child (the result would be the same for any third party).¹ This result has been followed under Texas and Louisiana law.²

In Louisiana, life insurance owned by one spouse either may be separate or community property even if community property is used to purchase the policy. As a result, a noninsured spouse could be treated as making a gift of all or one-half of the proceeds when the insured spouse dies and proceeds are paid to the child.³ When the noninsured spouse, as beneficiary, receives his or her community share or more, no gift is imputed to the noninsured spouse of amounts also payable to a third-party beneficiary unless there is evidence of donative intent.⁴