Exceptions to the transfer-for-value rule are statutory and common-law carve outs that preserve the life-insurance death benefit income-tax exclusion despite a policy transfer. Transfers to the insured, to a partner of the insured, to a partnership or corporation in which the insured is a partner or shareholder, or to a transferee whose basis is determined by the transferor's basis (carryover basis) are typical exceptions. These safe harbors allow legitimate ownership changes-such as buy-sell funding or trust restructuring-without converting death proceeds into taxable income. Documentation must clearly match the exception relied upon.

During buy-sell restructuring or trust changes, advisors document that a policy transfer meets a transfer-for-value exception-e.g., moving a policy to the insured's grantor trust or to a partner's entity. Cover letters cite the applicable exception and include ownership and basis records. Proper execution preserves income-tax-free death benefits for beneficiaries.