Method One: Transferring Ownership to Other People

Transferring ownership of your policy to another person involves a trade-off: Once the policy is transferred, you've lost all your power over it, forever. You cannot cancel it or change the beneficiary. Suppose, for example, you transfer ownership of your policy to your spouse, and later get divorced. You cannot cancel the policy or recover it from your ex-spouse. In many situations, however, these gifts work well -- for example, when you transfer policy ownership to an adult child with whom you have a close and loving relationship.

IRS Rules Governing Life Insurance Transfers

The IRS has rules that determine who owns a life insurance policy when the insured person dies. Gifts of life insurance policies made within three years of death are disallowed for federal estate tax purposes -- and often for state estate tax purposes, too. This means that the full amount of the proceeds are included in your estate, as if you had remained owner of the policy.