Will the life insurance policy covering you be included in your estate?

The proceeds of life insurance are includable in your estate if:

1. The proceeds are receivable by your estate,
2. The proceeds are receivable by another entity for the benefit of your estate,
3. The proceeds are not receivable by or for the benefit of your estate and you "possessed incidents of ownership in the policy."

The third rule above requires some explanation: it is possible that you may not legally own the policy but still have incidents of ownership. Rather the term (incidents of ownership) refers to the right to economic benefits of the policy. This includes the power to change beneficiaries, to revoke an assignment, to obtain a loan against the surrender value, to pledge the policy for a loan, or to surrender or cancel the policy. Incidents of ownership does not include the right to receive dividends.

Additionally, it is possible that you may have no remaining incidents of ownership but still have the policy included in your estate if you previously held incidents of ownership, but assigned the policy within three years of decease.

Please contact us if you have any questions regarding this matter.

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Copyright © 2000 Coston and McIsaac, CPAs
Last modified: January 06, 2005

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