A. The death benefit of life insurance is includable in the decedent's gross estate. None of the current tax change proposals contemplate changing the taxability of the death benefit of life insurance. However, there are some potential changes to the gift tax laws that could have an impact on certain estate planning strategies that leverage life insurance.
Currently, there is no limit to the number of annual exclusion gifts, whether to a trust or otherwise. As a result, people with multiple children and/or grandchildren (or other beneficiaries) can utilize their annual exclusion gifts to make $15,000 gifts to each beneficiary of a trust to fund life insurance policy premium payments.
Because an irrevocable trust is a separate and distinct entity for estate tax purposes, the value of a life insurance policy owned by the trust is not included in the estate of the insured.