206 / If the primary beneficiary is given the power to revoke contingent beneficiaries and appoint to his or her estate under a settlement option, are life insurance proceeds remaining unpaid at the primary beneficiary’s death includable in his or her estate?

If a beneficiary has the power to appoint to his or her estate, then the beneficiary has a general power of appointment over the proceeds.¹ Generally, such a power, given to a surviving spouse-beneficiary, will qualify the proceeds for the marital deduction in the insured’s estate ( Q 193), but will cause remaining unpaid proceeds to be includable in the beneficiary’s estate. However, includability in the beneficiary’s estate will depend on when the power was created. If the power was created after October 21, 1942, the proceeds remaining unpaid at the primary beneficiary’s death are includable in his or her estate.² If the power was created before October 22, 1942, the proceeds remaining unpaid at the beneficiary’s death are includable in his or her estate only if the beneficiary exercised the power. (See Q 204 with respect to when a power is created.)

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1.     Treas. Reg. § 20.2056(b)-6(e)(4).

2.     IRC § 2041(a)(2).

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