Incidents of ownership are rights or powers over a life insurance policy-such as the ability to change beneficiaries, assign, pledge, surrender, borrow against cash values, or control policy proceeds. For estate-tax purposes, if the insured holds incidents of ownership at death (directly or indirectly), policy proceeds are generally includable in the insured's gross estate. Planning commonly transfers ownership to an irrevocable life insurance trust (ILIT) or another party to avoid estate inclusion, with attention to timing, the three-year look-back on transfers, and practical control considerations. Clearly documenting who can exercise each policy right helps preserve intended transfer-tax outcomes and avoid inadvertent retention of powers.

Estate planners avoid incidents of ownership by issuing new coverage to an ILIT or transferring existing policies-with awareness of the three-year inclusion rule. Trustees control policy rights; grantors fund premiums via exclusion gifts backed by Crummey notices.