A more thorough explanation:

Incident of Ownership

Incident of ownership refers to any right of control that can be exercised over a transferred life-insurance policy. This control allows the policy's proceeds to be included in a decedent's gross estate for estate-tax purposes. The incidents of ownership include the rights to change the policy's beneficiaries and to borrow against, assign, and cancel the policy.

• Douglas gave his life-insurance policy to his daughter, but he still retained the incidents of ownership. As a result, the policy proceeds were taxed against his estate.
• John transferred his life-insurance policy to his wife, but he retained the right to change the policy's beneficiaries. This means that the policy's proceeds will be included in John's gross estate for estate-tax purposes.

The examples illustrate how the incidents of ownership can affect the taxation of life-insurance policy proceeds. If the original policyholder retains any control over the policy, such as the right to change beneficiaries or cancel the policy, the proceeds may be subject to estate tax upon the policyholder's death.