If you decide you want to make lifetime gifts to your kids, what should you give away first? Your life insurance policy, some experts say. If you die owning an insurance policy, payable to someone besides your spouse, the proceeds (which might be $250,000, $500,000, or more) will be included in your taxable estate. Even if the proceeds go to your spouse, they’ll be in his or her taxable estate. Instead, give the policy to your grown children or to a trust. The way insurance policies are valued, you’ll probably owe little or no gift tax. Three years after the transfer, the policy will be excluded from your estate. What if your policy has substantial cash value so giving it away would generate estate tax? Then borrow as much as you can from the policy, reducing its value, before giving it away.