620 / What are the estate tax results when a decedent has been receiving payments under an annuity contract?

If a contract provides a survivor benefit (as under a refund life annuity, joint and survivor annuity, or installment option), tax results depend on whether the survivor benefit is payable to a decedent’s estate or to a named beneficiary and, if payable to a named beneficiary, on who paid for the contract.

If payable to a decedent’s estate, the value of the post-death payment or payments is includable in the decedent’s gross estate under IRC Section 2033 as a property interest owned by the decedent at the time of his or her death. If payable to a named beneficiary, the provisions of IRC Section 2039(a) and IRC Section 2039(b) generally apply and inclusion in the gross estate is determined by a premium payment test. Thus, if a decedent purchased the contract (after March 3, 1931), the value of the refund or survivor benefit is includable in the decedent’s gross estate.

In the event a decedent furnished only part of the purchase price, the decedent’s gross estate includes only a proportional share of this value ( Q 623 to Q 627).

The foregoing rules do not apply to death proceeds of life insurance on the life of a decedent ( Q 81). In addition, special statutory provisions apply to employee annuities under qualified pension and profit-sharing plans ( Q 3982, Q 3983), to certain other employee annuities ( Q 632, Q 633), and to individual retirement plans ( Q 3712).