Estate taxes considerations: which statement is true?

Estate taxes considerations: which statement is true?

• A. Estate taxes may apply to benefits included in the insured's estate.
• B. Estate taxes never apply to such benefits.
• C. The policy cannot be named as an estate asset.
• D. Owner and insured must always be different.

Answer: (A)

Estate taxes on life insurance benefits depend on who owns the policy and whether the insured retains ownership at death. If the policy is owned by the insured or the insured has incidents of ownership at death (for example, the right to change beneficiaries, borrow against the cash value, or cancel the policy), the death benefit becomes part of the insured’s gross estate and may be subject to federal estate tax. That’s why the statement that estate taxes may apply to benefits included in the insured’s estate is true. The idea that estate taxes never apply ignores these ownership rules. The policy can be an estate asset if the insured owns it, so it isn’t automatically excluded. And owner and insured don’t have to be different; the owner can be the insured, which would pull the policy into the estate.

Estate taxes on life insurance benefits depend on who owns the policy and whether the insured retains ownership at death. If the policy is owned by the insured or the insured has incidents of ownership at death (for example, the right to change beneficiaries, borrow against the cash value, or cancel the policy), the death benefit becomes part of the insured’s gross estate and may be subject to federal estate tax. That’s why the statement that estate taxes may apply to benefits included in the insured’s estate is true. The idea that estate taxes never apply ignores these ownership rules. The policy can be an estate asset if the insured owns it, so it isn’t automatically excluded. And owner and insured don’t have to be different; the owner can be the insured, which would pull the policy into the estate.