## Facts

- An employer maintained a master group term life insurance policy covering employees; only employees could be insured, and the employer paid premiums monthly.
- An employee created an irrevocable trust and assigned to it all rights in the employee’s group term life insurance coverage issued under the master policy.
- Under the trust terms, the beneficiary (or the beneficiary’s estate) would receive the full policy proceeds upon the employee’s death.
- Coverage was in a stated amount until the employee reached age 65 or ceased employment, whichever occurred first.
- Neither the employee nor the trust had any contractual right to require the employer to continue the group policy.
- After the assignment, the employer continued paying premiums allocable to the employee’s coverage.
- The employee did not report the employer’s premium payments as gifts for the year at issue.

## Issues

1. Whether employer-paid premiums, after the employee assigned the group term policy to an irrevocable trust for another’s benefit, are indirect transfers by the employee subject to federal gift tax under I.R.C. §§ 2501 and 2511.
2. If the premium payments are treated as indirect gifts by the employee, whether each payment is a present-interest gift qualifying for the annual exclusion under I.R.C. § 2503(b).

## Decision

- The premium payments were treated as indirect, completed gifts by the employee to the trust beneficiary and were subject to gift tax.
- Each premium payment, to the extent it provided current insurance protection, was treated as a present-interest gift eligible for the annual exclusion.

## Legal Principles

- Gift tax applies to transfers in trust or otherwise, whether direct or indirect; the form or intermediary used does not prevent gift characterization.
- A gift is complete when the donor has relinquished dominion and control such that the donor cannot change the disposition of the transferred interest.
- Premium payments that provide insurance protection for a beneficiary other than the insured’s estate can constitute completed gifts of the value of the current protection, even when the payment is made by a third party pursuant to the insured’s arrangement.
- The annual exclusion under § 2503(b) applies only to present interests; current insurance protection is treated as a present economic benefit measured by the value of the protection for the coverage period.

## Conclusion

Employer-paid premiums on group term coverage assigned by an employee to an irrevocable trust for another’s benefit are treated as the employee’s indirect, completed gifts, but the value of each period’s insurance protection is a present-interest gift that generally qualifies for the annual exclusion.


Rev. Rul. 76-490, 1976-2 C.B. 300 (1976)