Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 79-47

1979-1 C.B. 312

Section 2503 -- Taxable Gifts

IRS Headnote

Exclusion; future interest; premiums on life insurance policy held in trust. A company paid life insurance premiums on behalf of an employee who assigned the policy to an irrevocable trust with the requirement that the trustee retain the proceeds and pay income from the proceeds and pay income from the proceeds periodically to the trust beneficiaries after the employee's death. Neither the employee nor the trust had a contractual right to require the employer to maintain the policy. The present payment of premiums is a gift by the employee of a future interest and does not qualify for the annual exclusion under section 2503(b) of the Code.

Full Text

Rev. Rul. 79-47

Advice has been requested whether an annual exclusion is allowable, under section 2503(b) of the Internal Revenue Code, with respect to life insurance premiums paid by a corporation on behalf of an insured employee in the following circumstances.

In 1970, X Company entered into an agreement with an insurance company providing for a master group term insurance policy insuring the lives of its employees. Only an employee was entitled to be insured. By the terms of the insurance contract, premiums were to be paid monthly in advance, on the first day of each month, by X Company. On January 31, 1975, D, an employee of X Company, created an irrevocable trust and assigned thereto all right, title and interest in the group term life insurance policy on D's life issued pursuant to the master policy. Under the terms of the trust, the trustee is required to retain the insurance proceeds in trust after the death of D. On D's death, the trustee is required to pay out trust income to the then living children of D until the death of the last surviving child, at which time the remaining trust assets are payable to D's then surviving grandchildren.

The policy assigned to the trust provided insurance coverage in an amount of 200x dollars until D reached age 65, or ceased employment with X Company, whichever occurred first. Neither D nor the trust had a contractual right to require X Company to maintain the group contract. The cost of the group term life insurance coverage was excluded from D's gross income under section 79(a) of the Code. The premium payments by X Company are, for federal gift tax purposes, gifts by D. See Rev. Rul. 76-490, 1976-2 C.B. 300.

The question presented is whether an exclusion is allowable under section 2503(b) of the Code with respect to D's gift of insurance premiums.

Section 2503(b) of the Code permits the exclusion of $3,000 of gifts made to any one donee during the calendar quarter (except gifts of future interests in property), less the aggregate of the amount of such gifts to such person during all preceding calendar quarters of the calendar year, in determining the total amount of gifts for the calendar quarter. The entire value of any gift of a future interest must be included in the total amount of gifts for the calendar quarter in which the gift is made.

Section 25.2503-3(a) of the Gift Tax Regulations provides, in part, as follows:

"Future interests" is a legal term, and includes reversions, remainders, and other interests or estates, whether vested or contingent, and whether or not supported by a particular interest or estate, which are limited to commence in use, possession or enjoyment at some future date or time. The term has no reference, to such contractual rights as exist in a bond, note * * * or in a policy of insurance, the obligations of which are to be discharged by payments in the future. (Emphasis added.)

Example (2) in section 25.2503-3(c) of the regulations provides as follows: C transfers insurance policies on his own life to a trust created for the benefit of D. Upon C's death the proceeds of the policies are to be invested and the net income therefrom paid to D during his lifetime. Since the income payments to D will not begin until after C's death the transfer in trust represents a gift of a future interest in property against which no exclusion is allowable.

The present payment of premiums on the insurance policy represents a gift of a future interest in property for the same reason that the transfer of the policy itself is a gift of a future interest under example (2) of section 25.2503-3(c) of the regulations (quoted above). Accordingly, no exclusion from taxable gifts is allowable under section 2503(b) of the Code with respect to the payment of insurance premiums by D, through D's employer.