AA—Life Insurance as Property

Life insurance differs from most other kinds of contracts because life insurance can potentially place specific rights in three types of persons: theinsured, theowner, and thebeneficiary. These characteristics make life insurance unique when compared to other types of property. In fact, their arrangement will determine whether or not the death benefit will be subject to estate or even gift taxes.

A. Death proceedswillbe included in the gross estateif the insured possesses any incidents of ownership in the contract at the time of his or her death, or within three years of his death, no matter who might be the beneficiary.

B. Likewise, when the insured’s estate is named beneficiary, the death proceeds will be included in the gross estate, even though the insured may have possessed no incidents of ownership.