An incident of ownership
also includes a reversionary interest (whether arising under the policy or other instrument or by operation of law), but only if the reversionary interest's value exceeded 5% of the policy's value immediately before the decedent's death (Sec.
Accordingly, the proceeds are includable if they are payable to or for the benefit of the insured's estate, or if the insured possesses any incident of ownership
in the policy at the time of his or her death.
The most crucial "incident of ownership
" that emerged from the rulings and cases was the power of the policyholder to decide which specific investments the account will hold.
Although a client's direct ownership of the policy is readily evident in a review, an advisor should also watch out for any incident of ownership
. This occurs when a client who has transferred ownership of the policy to another individual or trust retains an incident of ownership
(i.e., the ability to borrow or change beneficiary) that would cause inclusion of the insurance proceeds in his estate for tax purposes.
Although the right to reversion, which had previously been excluded from consideration as an incident of ownership
, was now added to the list of factors considered incidents of ownership, the sole focus on incidents of ownership now meant that through proper planning it was possible to have a taxpayer furnish the premium payments for an insurance policy on his life without triggering gross estate inclusion.
June can't make direct gifts to the trust without creating an incident of ownership
The 1RS recently ruled on a situation where the grantor's power to substitute in a life insurance trust could be interpreted as giving the grantor an "incident of ownership
" in the life insurance policy held by the trust thus resulting in estate inclusion of the value of the policy.
(1au) (For what constitutes an incident of ownership
, see Q 45.) But even if the proceeds are payable to a beneficiary other than the insured's estate, and the insured possesses no incidents of ownership in the policy, the proceeds are nevertheless includable in his gross estate if they are receivable for the benefit of his estate (see Q 42).
(9) However, if the spouse dies before the insured, and the spouse's interests in the policy cash values pass in any way that cause the insured to have an incident of ownership
in the policy, upon his subsequent death the death proceeds will be included in his estate.
The proceeds would be included only if the three-year rule of IRC Section 2035 discussed above applied or if the surviving insured retained an incident of ownership
in the policy.
The legislative history of the indirect credit is devoid of any discussion of the voting stock requirement.(6) Regardless of whether the domestic corporation is a general or limited partner in the partnership, the focus should be on who has the core incident of ownership
-- the right to vote the foreign shares.
In Chief Counsel Advice 201328030, the IRS concluded that the retention of the right to policy dividends is not an incident of ownership
for purposes of Sec.