Premiums Paid Under a Life Insurance Policy Not Gifts to the Beneficiary, Hence Not Subject to Gift Taxes

October 22, 1968 BIR RULING NO. 026-68 MEMORANDUM FOR: The Chief, Special Investigation Division This refers to the memorandum dated August 14, 1968 of Rev. Examiner Delfin G. Perea relative to the estate of the late Amado K. H. Lim requesting legal opinion as to whether or not premiums paid under a life insurance policy with an irrevocable designation of a beneficiary are subject to the donor's and donee's gift taxes prescribed by Sections 109 and 110 of the Tax Code. Premiums paid by the insured under his life insurance policy are not gifts to the beneficiary or beneficiaries so designated therein, regardless of whether such designation is revocable or irrevocable. This is for the reason that the surrender of control over economic benefits is emphasized as the test of a completed gift. (Burnet v. Guggenhein, 228 U.S. 280) Inasmuch as all economic benefits attached to the policy are still within the control of the insured at the time the premiums are paid thereon, said payments of premiums cannot be considered gifts to the beneficiary. At most, upon designation, the beneficiary only acquired a contingent or inchoate interest in the proceeds of the life insurance which will ultimately accrue to him upon the death of the insured. In view thereof, this Office believes and so holds that premiums paid by the late Amado K. H. Lim under his life insurance policies are not subject to the donor's and donee's gift taxes prescribed in Sections 109 and 110 of the Tax Code, as amended. cdtech (SGD.) MISAEL P. VERA Commissioner of Internal Revenue