627 / Are death proceeds payable under a single premium annuity and life insurance combination includable in an annuitant’s gross estate?

Even though an insured-annuitant holds no incidents of ownership in a life insurance policy at death, the proceeds of the policy nevertheless are includable in his or her gross estate under IRC Section 2039 as a payment under an annuity contract purchased by the insured- annuitant.¹

In a case decided before IRC Section 2039 was enacted, the U.S. Supreme Court held that the proceeds were not includable in the insured-annuitant’s gross estate under IRC Section 2036 as property transferred by the insured-annuitant in which he retained a right to income for life.²

If an insured-annuitant transfers a life insurance policy within three years before his or her death, the proceeds may be includable in the insured-annuitant’s gross estate under IRC Section 2035 ( Q 96).³

If an insured-annuitant owns a life insurance policy at death, the proceeds are includable in his or her gross estate either as property owned at the time of death⁴ or as a payment under an annuity contract purchased by the insured-annuitant.⁵