When a named beneficiary of an insurance policy gifts the proceeds to another person, who is liable for the gift tax?

The named beneficiary of an insurance policy is responsible for any gift tax liability when they choose to gift the proceeds to another person. When the beneficiary receives the insurance payout, they have full ownership of that amount and can decide how to use or distribute it. If they decide to gift the entire or part of the proceeds to another individual, that gift is subject to gift tax under the Internal Revenue Code.

The requirement for the named beneficiary arises from their control over the funds once they are received. Since they made the decision to give the proceeds away, the IRS considers this a completed gift, making the beneficiary liable for any associated gift tax, provided the amount exceeds the annual gift tax exclusion.

Other parties, such as the insurance company or the next of kin, do not bear the tax liability in this situation. The estate of the decedent may be involved in the context of estate taxes, but it does not factor into the gift taxes imposed on the actions of the named beneficiary after the policy has been paid out.