To Own or Not to Own Your Life Insurance Policy?

29 Pages Posted: 28 Aug 2011 Last revised: 10 Jul 2014

See all articles by David Joulfaian

David Joulfaian

U.S. Department of the Treasury, Office of Tax Analysis (OTA); Georgetown University - Department of Economics

Date Written: July 6, 2014

Abstract

Life insurance proceeds are generally subject to the estate tax. An exception is when the policy is owned by the beneficiaries and the insured gives up ownership and control, including the ability to change beneficiaries. Should the insured strategically own the policy contract and potentially subject proceeds to estate and inheritance taxes, or relinquish control, with the beneficiaries owning the policy, and escape such transfer taxes? This paper addresses how the estate tax influences the choice of life insurance ownership. Using samples of estate tax returns, the empirical evidence suggests that those facing high estate tax rates are more likely to forgo ownership and have proceeds excluded from their estates, and provides further evidence on the incentive effect of taxes and in support of the strategic bequest motive.

Keywords: life insurance, bequests, inheritance and estate taxes

JEL Classification: D64, G22, H24, H31

Suggested Citation

Joulfaian, David, To Own or Not to Own Your Life Insurance Policy? (July 6, 2014). Available at SSRN: https://ssrn.com/abstract=1917735 or http://dx.doi.org/10.2139/ssrn.1917735

David Joulfaian (Contact Author)

U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave. NW
Washington, DC 20220
United States

Georgetown University - Department of Economics ( email )

37th St NW & O St NW
Washington, DC 20007
United States

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