Premium gift taxation refers to how U.S. gift tax rules apply when an individual pays life insurance premiums on a policy they do not personally own, such as coverage held in an irrevocable life insurance trust (ILIT) or owned by another family member. Premium payments in these cases are treated as gifts to the policyowner or trust beneficiaries. Advisors and tax professionals must consider annual exclusion rules, lifetime gift and estate tax exemptions, and whether Crummey withdrawal powers or other techniques are used to qualify contributions for the annual exclusion. Poorly structured premium gifts can unintentionally use lifetime exemption or trigger gift tax filings that the client did not anticipate.

In advanced planning, premium gift taxation is a central topic when funding ILITs or other trust-owned policies. Estate planners design contribution patterns, Crummey notices, and trust provisions to align premium gifts with annual exclusion amounts whenever possible. Advisors coordinate with CPAs to ensure necessary gift tax returns are filed and that cumulative gifts are tracked against lifetime exemption. When large premiums exceed annual exclusions, clients may intentionally use part of their lifetime exemption as part of a broader wealth transfer strategy. Clear explanation of premium gift taxation helps clients avoid surprises and maintain compliance while still achieving their insurance and estate planning objectives.