It would help to know the amount involved. There would seem to be no problem with the friend simply gifting it to you. He/she can give $13,000 per year without even reporting it to the IRS. More than that, and a gift tax return would need to be filed. If you intend to simply invest it for the kids, I would have her gift you $13,000 per year and just invest it as she gives it to you. If there is a need for you to get the whole thing sooner, then she can gift it to you, report it to the IRS, and you are done.
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If your friend's goal is to make the proceeds available to your children, then she shoul consult with an estate planning attorney and have that person review the policy to see if a disclaimer would result in the transfer of the funds to your children. As Mr. Frederick notes, knowing how much money is at issue would be helpful and transfers to you/your children would be subject to federal gift tax reporting if the amounts exceed $13,000 per donee. Also, would the friend want to safeguard the funds from the children's creditors, etc. or restrict access to them? Again, the answers to these questions depend upon the amounts involved and your specific situation. You asked for the "best" way to make this transfer, and the best way is not usually the easiest. I recommend that she meet with an experienced estate planning attorney in her community before doing anything.
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You are going to need to consult with an estate or tax attorney, or perhaps a family law attorney well-schooled in probate, estate and tax issues, but it should only cost you $100 to $500 for the help you need ... unless some type of trust is required.
The amounts are important. Whether you, the friend and the children are all on good terms is important. The children's ages may matter.
I would like to give you a better answer, but there really is no good answer to your question without a much more complete understanding of all the facts.