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Policyholder other than insured.

676. If a policyowner who is not the insured dies before the insured, is the value of the unmatured life insurance policy included in the policyowner's gross estate?

Yes. IRC Sec. 2033. The value of the policy is determined in the same manner as for gift tax purposes, substituting date of death for date of gift (see Q 745). (3)

A revenue ruling involved the estate tax valuation of a third party owned policy on the split dollar plan (see Q 467). The policy had been in force for some time and premiums remained to be paid after the decedent policyowner's death. Premiums and proceeds were split between the decedent and the insured's employer, to whom the policy had been collaterally assigned. It was ruled that the amount includable in decedent's estate was the interpolated terminal reserve plus the proportionate part of the gross premium paid before the date of decedent's death that covered the period extending beyond that date, less the amount of the employer's interest in the policy. (4)

Where the executor elects to value assets six months after death (alternate valuation), any increase in policy value due to payment of premiums or accrual of interest during the six months following death, is excluded in determining the estate tax value of the policy. (5) But if the executor elects to value the estate by the alternative valuation method, and the insured dies before the optional valuation date (six months after the policyowner's death-see Q 861), the entire value of the proceeds is includable in the policyowner's gross estate. (6) (See Q 861.)

Where the owner-beneficiary of a life insurance policy and the insured die simultaneously (to all appearances), and where policy proceeds are distributed as if the owner-beneficiary predeceased the insured (as provided in the Uniform Simultaneous Death Act, except where the policy or other controlling instrument provides otherwise), the value of the policy (valued as described above) is likewise included in the owner-beneficiary's estate under IRC Section 2033. (7) In Rev. Rul. 77-181, A and B each owned policies on the other's life with proceeds payable to the owner or the owner's estate. A and B died under circumstances where the Uniform Act provisions applied, so that the proceeds of the policies on A's life were paid to B's estate and the proceeds of policies on B's life were paid to A's estate. The Service ruled that the amount to be included in the gross estate of each was the sum of the date-of-death interpolated terminal reserve value of the policies decedent owned at death and the proportionate part of the gross premium last paid covering the post-death period. Where, in the instrument controlling disposition of policy proceeds, the presumed order of the deaths is reversed (from that provided for in the Uniform Act), simultaneous deaths of the policyowner-beneficiary and the insured will cause the death proceeds to be includable in the policyowner's estate. (1) (See also Q 736.)

(3.) Treas. Reg. [section] 20.2031-8; DuPont Est. v. Comm., 233 F.2d 210 (3rd Cir. 1956); Est. of Donaldson v. Comm., 31 TC 729 (1959).

(4.) Rev. Rul. 79-429, 1979-2 CB 321.

(5.) Rev. Rul. 55-379, 1955-1 CB 449.

(6.) Rev. Rul. 63-52, 1963-1 CB 173.

(7.) Chown v. Comm., 428 F.2d 1395 (9th Cir. 1970); Old Kent Bank & Trust Co. v. U.S., 430 F.2d 392 (6th Cir. 1970); Meltzer v. Comm., 439 F.2d 798 (4th Cir. 1971); Wien v. Comm., 441 F.2d 32 (5th Cir. 1971); Rev. Rul. 77-181, 19771 CB 272; Est. of Goldstone v. Comm., 78 TC 1143 (1982).

(1.) Rev. Rul. 77-48, 1977-1 CB 292.
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Publication:Tax Facts on Insurance and Employee Benefits
Date:Jan 1, 2010
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