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Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 3593
Experience:  18+ years of experience in tax preparation; 25+ years of experience as a real estate/corporate paralegal.
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Of avoiding the inclusion of life insurance proceeds

Customer Question

For purposes of avoiding the inclusion of life insurance proceeds in a decedent's gross estate may the decedent divest himself of all power over the policy, except the right to cancel the policy by ceasing to pay the premiums coming due thereby letting the policy lapse?
Submitted: 2 years ago.
Category: Tax
Expert:  Robin D. replied 2 years ago.

Hello and thanks for trusting me to help you today. I am a tax adviser with over 20 years of experience.

If you are the owner of the insurance policy, it will become a part of your taxable estate when you die.

You can either transfer the policy to someone else or put the policy into a trust. Once you transfer a policy to a trust or to someone else, you will no longer own the policy, which means you won't be able to change the beneficiary or exert control over it.

If your spouse is the beneficiary of your policy then it does not get included in the estate.

You should look under your MY QUESTIONS section. All questions you have posted are there with any responses too.

You can see one of your question by using this url:

Customer: replied 2 years ago.

You are somewhat off the mark when your answer tells me ' . . . if your spouse is the beneficiary of your policy then it does not get included in the estate.'

My question was purely one addressed to the issue of what is included in the decedent's 'gross estate' for estate and gift tax purposes. And there you go telling me - like I am a child of 10 years or else the village idiot that a life policy, purchased by the decedent, and over which the decedent retained complete control, including the right to change beneficiary (including by the way the right to change his wife as beneficiary), the death benefit would not be included in the decedents estate.

Perhaps you need to take a look at the instructions for IRS form 706. There you will find a first year law student's description of the consequences of the policy holder being able to exercise what are called 'incidents of ownership' over the life policy. These instructions, you appear to be completely unaware of.

I am not going to give you a poor rating, but I do not think the advice you gave here is worth the money charged.

Guess not many people have there gift and estate tax returns prepared by H & R Block.

Expert:  Robin D. replied 2 years ago.
There must have been an issue with the post. I am not certain why you merely received one line of the post.Thank you for your continued use of Just Answer and sincerely ***** ***** Support was able to assist you with your situation about seeing all your questions.
Expert:  Barbara replied 2 years ago.
Different expert here – My name is ***** ***** please allow me to provide you with information that specifically addresses your initial question.
All policies should be listed on Schedule D of Form 706, whether or not they are includible in the gross estate for estate tax purposes. Include the same information as you would for any other policy, but do not include a value in the value column. In your description of this policy, explain why the policy is not includible.
If the decedent held any incidents of ownership in the insurance, it goes in the taxable estate. The IRS gives specific examples of the rights that count as incidents of ownership. These rights include:
The right to name and change the beneficiary;
The right to assign the policy to another or to revoke an assignment;
The right to surrender or cancel the policy;
The right to pledge the policy as collateral for a loan or to obtain a loan against the surrender value from the insurance company.
Based on the above, “the right to cancel the policy by ceasing to pay the premiums coming due thereby letting the policy lapse” would be an incident of ownership, and the policy would be included in the taxable estate.
Please let me know if you require further information or clarification.
Thank you and best regards,