swap out of life ins. from qualified plan

Facts: Mr. A is a participant (also the plan trustee)in a profit sharing plan. The plan purchased life inurance on his life some years ago. "Swap-Out": He now will be purchasing the policy from the plan for its surrender value and naming a new personal benefiary. Step 2.: to remove L.I. proceeds from his estate, he will move the policy to a life insurance trust (LIT). Problems: he might now be uninsuable or require too high a premium (he now has leukemia)to buy L.I. to insure against the potential estate tax for the three-year period his estate would be liable. Question: Can he buy the policy and then give it to his spouse and she then could gift the policy to the L.I.T. and avoid the three-year rule?? I read somewhere that this would work. However, one lawyer said that it might cause the proceeds to be included in the spouse's estate if she were the main trust beneficiary. Is this lawyer correct or would proceeds be estate tax free in both estates?

[Edited by duckman on 02-17-2001 at 05:43 PM]

Sorry, this is one that is highly technical, and really requires an opinion of counsel on which you can rely.