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This appeared to be a highly specialized and detail oriented situation, but i did find it referred to on both attorney sites and some general insurance sites. I figured agents selling life insurance would be able to comment on it further. I don't know at what policy $ level an estate attorney or tax accountant should be involved to prevent actual tax consequences if the gift issue comes into play.
Words matter.
It is not gift tax, but Federal Estate tax. In some states it is inheritance tax, which while similar actually works differently.
So again, when is a life insurance death benefit ever taxable as a gift to a named beneficiary?