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the date of his death any of the incidents of ownership in the
policy”. Sec. 20.2042-1(c)(1), Estate Tax Regs. Regulations
also define “incidents of ownership”:
For purposes of this paragraph, the term
“incidents of ownership” is not limited in its meaning
to ownership of the policy in the technical legal
sense. Generally speaking, the term has reference to
the right of the insured or his estate to the economic
benefits of the policy. Thus, it includes the power to
change the beneficiary, to surrender or cancel the
policy, to assign the policy, to revoke an assignment,
to pledge the policy for a loan, or the obtain from the
insurer a loan against the surrender value of the
policy, etc. * * * [Sec. 20.2042-1(c)(2), Estate Tax
Regs.]
The above definition is then augmented by the following caveat:
As an additional step in determining whether or
not a decedent possessed any incidents of ownership in
a policy or any part of a policy, regard must be given
to the effect of the State or other applicable law upon
the terms of the policy. For example, assume that the
decedent purchased a policy of insurance on his life
with funds held by him and his surviving wife as
community property, designating their son as
beneficiary but retaining the right to surrender the
policy. Under the local law, the proceeds upon
surrender would have inured to the marital community.
Assuming that the policy is not surrendered and that
the son receives the proceeds on the decedent’s death,
the wife’s transfer of her one-half interest in the
policy was not considered absolute before the
decedent’s death. Upon the wife’s prior death, one-
half of the value of the policy would have been
included in her gross estate. Under these
circumstances, the power of surrender possessed by the
decedent as agent for his wife with respect to one-half
of the policy is not, for purposes of this section, an
“incident of ownership”, and the decedent is,
therefore, deemed to possess an incident of ownership
in only one-half of the policy. [Sec. 20.2042-1(c)(5),
Estate Tax Regs.]
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Last modified: May 25, 2011