Should You Own Your Life Insurance Policy?

David Joulfaian (The Department of the Treasury, Washington, D.C.) recently published his article entitled To Own or Not Own Your Life Insurance Policy?, U.S. Dep. of the Treas. (2011). The abstract available on SSRN is below:

Life insurance proceeds are generally subject to the estate tax. An exception is when the policy is owned by the beneficiaries and the insured gives up ownership and control, including the ability to change beneficiaries. Should the insured own the policy contract and potentially subject proceeds to estate and inheritance taxes, or relinquish control, with the beneficiaries owning the policy, and escape such transfer taxes? There is an obvious tradeoff between minimizing bequest taxes and giving up control. This paper addresses how the estate tax influences the choice of life insurance ownership. The evidence from a sample of estate tax returns suggests that those facing high estate tax rates are more likely to forgo ownership and have proceeds excluded from their estates.