Reviewed by THOMAS J. CATALANO Verified by SUZANNE KVILHAUG
If a person, including a trustee, has the authority to change a life insurance policy’s beneficiaries, borrow money from the policy’s cash value, or otherwise alter or modify the policy in any way, they are considered to be owners.
Even if the individual does not take action and does not borrow from the policy, this occurs. The insured person acquires ownership rights simply by having the ability to do so.
The rights of a person or trustee to alter a life insurance policy in some way, borrow from the cash component, or change the beneficiaries are referred to as “incidents of ownership.”
When a person gifts a life insurance policy to another person or entity, the issue of incidents of ownership arises in terms of tax liability.
The person giving the gift must give up all legal rights to the policy and not pay any premiums when making such a transference.
There are specific requirements for different kinds of life insurance policies regarding ownership incidents.
