Federal Estate And Gift Tax

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§ 2042 - Life Insurance:
What are the two basic provisions of § 2042?

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(a) amounts payable to deceased's executor
(b) amounts payable to all other beneficiaries on the life of decedent where decedent possessed at his death any of the incidents of ownership

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§ 2042 - Life Insurance:
What are "incidents of ownership"

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--right of insured or estate to economic benefits of insurance
--power to change beneficiary
--power to surrender or cancel policy
--power to assign it
--power to revoke assignment
--power to pledge a policy for a loan
--power to obtain a loan from insurer against the surrender value of the policy
(see Reg. § 20.2042-1(c)(2))

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§ 2042 - Life Insurance:
What is the basic function of Life Insurance?

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Basics: Risk-shifting and Risk-distribution (see Rev. R. 83-44).

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§ 2042 - Life Insurance

Formal v. Informal possession of the incidents of ownership. What matters more?

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Just because a person regards and exercises practical control over a policy does not make it his. The policy facts are what control. See U.S. v. Rhode Island Trust Co., 355 F.2d 7 (1966 1st Cir.). But, see Morton v. U.S., 457 F.2d 750 (1972 4th Cir.), where The insured as never paid a premium and never treated policy as his own, his irrevocable designation of beneficiaries and mode or payment proceeds constitutes an effective assignment of the policy and decedent had no retained incident of ownership in the policy.