Mary, a wealthy individual aged 65, wants to transfer property to her son to avo
ID: 2427974 • Letter: M
Question
Mary, a wealthy individual aged 65, wants to transfer property to her son to avoid estate tax (assume Mary's estate is well in excess of $5.35 Million). Mary owns a cash value insurance policy on her own life, with a cash value of exactly $1 million. On December 31 of 2013 Mary made a gift of a $800,000 interest in the policy to her son and made a second gift of the remaining $200,000 to him on January 1, 2016. Assume Mary did NOT retain any incidents of ownership over the policy after January 1, 2016. On December 15, 2016 Mary died.
QA Is any (or all) of the policy included in Mary's taxable estate? (explain why or why not) ?
QB Assume the same facts as in QA except that Mary made a gift of the entire policy on January 1, 2016. Result?
Explanation / Answer
a) Only 200,000 and 800,000 would be included in Mary estate gift as Mary did NOT retain any incidents of ownership.
b) 200,000 and 800,000 and Insurance policy is included in Mary's taxable estate as he did not retain any incidents of ownership. In this case rights of policy are not transferred to the other person