192 / Will life insurance or annuity proceeds qualify for the marital deduction if payable to a surviving spouse under a settlement option with a surviving spouse’s estate designated as contingent beneficiary? What if they are payable to a surviving spouse as a straight life annuity?
If the proceeds are payable only to the surviving spouse or to his or her estate, they will qualify.1 For example, the following settlement would qualify: life income to a widow with a 20-year certain period, and should she die within the 20-year period, the balance of the guaranteed payments to be commuted and paid to her estate. The following settlement also would qualify: interest to widow for life, and principal to her estate at her death. Likewise, the proceeds will qualify if they are payable to the surviving spouse under a straight life annuity settlement with no refund or period-certain guarantee (no portion of the proceeds would be payable to any other person after her death).2
If proceeds are payable under a no-refund life annuity to the surviving spouse, qualification is not affected by the fact that an annuity also is payable to another, so long as the respective rights to their annuities are not tied together in any way.3 When only the surviving spouse has the right to receive payments from a survivor annuity during such spouse’s lifetime, such proceeds are treated as qualified terminable interest property unless otherwise elected by the decedent spouse’s executor.4
1. IRC § 2056(a); Treas. Reg. § 20.2056(c)-2(b)(3).
2. Treas. Reg. § 20.2056(b)-1(g), Example (3).