845 / Is the value of a life insurance agent’s renewal commissions includable in the gross estate?

Yes, assuming that he owns the right to the renewal commissions at the time of his death. The value includable will be the fair market value of the renewals at the time of death. Following the agent’s death, the actuaries of the company will value the renewal account using some appropriate persistency table and an assumed rate of interest. If desired, the renewal commissions can be made to qualify for the marital deduction. For example, the value of the commissions will qualify for the marital deduction if all commissions are payable to the surviving spouse during her lifetime, and to her estate at her death. They should also qualify if she has the right to all renewals payable during her lifetime and a power to appoint who shall receive the commissions payable after her death. But if the surviving spouse is given only a right to those commissions which are payable during her lifetime, and someone else will receive the remaining payments in the event of her death during the renewal period, she will have only a “terminable interest” in the commissions, and they will not qualify unless a QTIP election is made.¹ The recipient must pay income tax on the renewals as received but is entitled to an income tax deduction for the estate tax attributable including the value of the renewals in the agent’s gross estate.

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1. Est. of Selling v. Comm., 24 TC 191 (1955); Est. of Baker v. Comm., TC Memo 1988-483; Let. Rul. 9016084.