Under IRC Sec. 2042, proceeds of life insurance are includable in the gross estate if any of the following conditions are met:

• the decedent possessed any incidents of ownership in the policy
• the proceeds are receivable by the estate
• the proceeds are receivable by another for the benefit of the estate

   

If the proceeds payable to the decedent's estate are community property, usually only one-half of the proceeds belong to the decedent and are subject to estate taxes. Careful review of each community-property state's laws is imperative when considering life insurance; community-property states do not treat life insurance consistently. 

 

The value of life insurance policies owned by the decedent on another person's life are included in the gross estate of the decedent as property owned at death.

 

The full value of life insurance proceeds from policies on the decedent's life transferred by the decedent within three years of the decedent's death will be included in the gross estate for federal estate tax purposes.

 

 

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