202 / If the surviving income beneficiary dies possessing the power during his or her lifetime to appoint the life insurance proceeds only to his or her children, are the proceeds includable in the surviving income beneficiary’s estate?

If the surviving spouse has a “qualifying income interest for life” in the proceeds, the proceeds will be includable in the surviving spouse’s estate if the marital deduction election was made regardless of whether the surviving spouse has any power to appoint the proceeds ( Q 193).¹ If the surviving spouse does not have a “qualifying income interest for life” in the proceeds, according to a 1979 revenue ruling, the answer depends on whether the income beneficiary at the surviving spouse’s death could have discharged his or her legal duty to support the children, in whole or in part, by exercising the power to appoint the proceeds. To the extent the surviving spouse could have appointed the proceeds, the power would be treated as a general power of appointment and the proceeds would be includable. Under the facts of the ruling, it was held that no part of the proceeds was includable because all of the income beneficiary’s children were adults at the time of the surviving spouse’s death and the surviving spouse was not obligated under local law to provide for their support.² See Q 186 regarding the reciprocal trust doctrine.

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1.     IRC § 2044.

2.     Rev. Rul. 79-154, 1979-1 CB 301.

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