3994 / Is a death benefit payable under a Keogh plan includable in a self-employed individual’s gross estate?

Yes, generally, as to decedents dying after 1984.

Estates of Decedents Dying After 1984

The federal estate taxation of survivor benefits payable under a Keogh plan ( Q 3827) is the same in the estate of a self-employed individual/participant as in the estate of a participant covered under a corporate plan ( Q 3993).

Estates of Decedents Dying After 1953 and Before 1985

The federal estate tax exclusion ( Q 3993) is available to the estates of self-employed individuals covered under qualified plans. For purposes of the exclusion, contributions or payments on behalf of the decedent participant while he or she was covered as a self-employed individual ( Q 3932) are treated as employer contributions to the extent they were deductible as contributions to a qualified plan ( Q 3940); to the extent they were not so deductible, such contributions or payments are treated as employee contributions.¹

The exclusion applies only to amounts that are attributable to employer contributions² and to deductible employee contributions. In an insured plan, for example, the cost of current life insurance protection for self-employed participants is not deductible ( Q 3952H); therefore, the at risk portion of the death proceeds of life insurance payable under the plan is not eligible for the estate tax exclusion. As to common law employees, on the other hand, the entire proceeds are eligible for the exclusion where the employer pays the cost.