Determining the ownership of a life insurance policy is an important part of estate analysis. The tax consequences can vary significantly, depending upon the arrangements made. Generally, naming someone other than the insured as the owner of a life insurance policy is done when the individual is willing to begin the gift giving process. Gift giving involves parting with the policy payments. Gift giving can be complicated so hiring competent counsel should be done. Here are some examples:

• Ownership by the Insured—If you want to retain lifetime access to the policy and its value, you can own the policy and name the beneficiary. This provides you the most flexibility, but the death benefit will be included in your gross estate.

• Ownership by a Third Party—If you do not want the policy included in your estate, it is best for the applicant, owner and beneficiary to be a third party. Usually, this is a child of the insured or an irrevocable life insurance trust.

• Ownership by a Child of the Insured—If you want a child to receive the benefit of the policy directly, you can name him or her the outright owner of the policy. Keep in mind that if you have more than one child each should have a policy insuring your life. Joint ownership of a single policy can create a number of problems. Children should not be minors when named owners of the policy because they do not have legal rights to enter into contracts.

• Ownership by a Trust—This type of ownership is typically preferred because it offers flexibility and administrative convenience. Most trust documents address a variety of issues that may arise in the future and offer direction. The larger your estate, the larger your life insurance policy should be, and a more sophisticated trust agreement will be needed.