Commonly known as the three-year rule, I.R.C. Section 2035, requires that the death proceeds of a life insurance policy will be included in the decedent's estate if the decedent transferred the policy by gift within three years of his or her death. I.R.C. Section 2035.
A decedent's gross estate will also include the proceeds of any policy payable to his or her executor or for the benefit of the decedent's estate – whether or not the decedent had retained any incidents of ownership in the policy at death. I.R.C. Section 2042.
If a decedent dies possessing incidents of ownership in a life insurance policy on his or her life, regardless of the identity of the beneficiary, the proceeds will be included in the decedent's gross estate.
If there is an annuity payable as a result of the recipient's surviving the decedent, and if the payment is made under a contract that also provided the decedent with a payment (or a right to a payment) for life, the present value of that income right is included in the decedent's gross estate. Life annuity contracts that provide payments to the decedent and end at death are not included in the gross estate because there is no death time transfer of any interest. I.R.C. Section 2039.
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