Select a classmate’s thread, and create a scenario explaining how life insurance can be used to provide for the expenses of a client’s estate without creating incidents of ownership or the insurance policy becoming part of the estate.


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     Life insurance is a wonderful gift to give to those that will be left behind in the event of death.  The person, who owns the policy can choose who receives the benefits of the policy and that person, the beneficiary, will be free from paying income tax on the proceeds.  However, the value of the life insurance policy will be added to the gross estate of the decedent (Dalton & Langdon, 2016). When planning an estate, one should be aware of incidents of ownership.  Incident of ownership in a life insurance policy is defined as, “…the ability to exercise any economic right in the policy” (Dalton & Langdon, 2016).  A person that holds an incident of ownership may, “…borrow against it, pledge it as collateral, or assign it under a contract” (Eghrari, 2016).  This partial ownership of a life insurance policy also gives a person the right to change the beneficiary.  Knowing the details of incident of ownership of a life insurance policy is important.  If a person has such an ownership in a life insurance policy that covers the life of another, that policy will be added to their gross estate as well.  Creating a trust is one possible way of avoiding adding costly value to a gross estate. Bradley E.S. Fogel in his article, Life Insurance and Life Insurance trust: Basics and Beyond says, “In order to prevent the proceeds from a policy held by a life insurance trust from being included in the insured’s estate, the trust must be drafted so that the insured has none of these powers in the policy, either individually or as trustee” (Fogel, 2002).  This plan will not work however if the money from the policy goes to the executor of the decedent’s estate (Fogel, 2002).  Therefore, the trust must be run by someone who will not receive the money in order to avoid the addition to the gross estate.  In the end it would be wise to have an estate planner review each case in order to reduce the tax expense inherent with death.   Proverbs 10:4, in the International Version says, “Lazy hands make for poverty, but the diligent hands bring wealth.”  This process of reducing the tax bill that must be paid on one’s estate is tedious and daunting work.  However, in the long run it will keep the money left behind in the hands of those designated to receive it and out of the hands of the government. 


Dalton, M. A., & Langdon, T. P. (2016). Estate Planning (9th ed.). St. Rose, LA, USA: Money Education.

Eghrari, M. (2016, August 30). Are Life Insurance Proceeds Subject to Taxes? Retrieved February 12, 2017, from http:// B. E. (2002, January). Life Insurance and Life Insurance Trusts: Basics and Beyond. Retrieved February 2017, 2017, from http://

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