Life Insurance
If you're trying to reduce the amount of your wealth that will be subject to the federal transfer tax by making lifetime gifts, giving away a life insurance policy can be a good idea. The reason for this is that life insurance is a fine example of an asset that can be expected to greatly appreciate in value. It may be worth relatively little while you are alive (particularly if it's term insurance, which has no cash value), but once you die, its value balloons.
Because of the great potential for transfer tax savings with this strategy, there are rules that limit it a bit: first, you must not retain a significant degree of control (called an "incident of ownership") over the policy transferred, and second, to keep the policy's value out of your gross estate, you must have transferred the policy more than three years before your death.
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