The most common alternative is to name the insured's children as owners and beneficiaries of the life insurance policies on the parent's life. Through the use of the annual gift tax exclusion, parents can gift the money to the children, so the children will be able to pay premiums. This simple approach keeps death proceeds out of both parents' estates.

There are disadvantages to making the children the outright owners of the life insurance policies. These disadvantages include:

• The children may be immature and misuse their rights of ownership.
• After the death of the insured, the children may not be willing to use the proceeds for estate liquidity purposes.
• If the children are the owners of the policies, the proceeds will become part of their estate for estate tax purposes to the extent they are not spent during lifetime.
• If the children are the owners, possible gift tax consequences will result from making any portion of the proceeds available for the surviving spouse's lifetime use.