D's Life Insurance Case Study


1. D’s Life insurance policy
a. Per 2042(1) since the proceeds of the life insurance are being paid to the estate they are subject to the estate tax.
b. No, 2042(b) since D still has the ability to designate the beneficiary the gift is not complete and he is deemed to retain “incident of ownership” and the policy will be included in the estate.
c. D should transfer the policy to another individual or an irrevocable trust. D must divest himself the incidents of ownership. D must give up the right the power to change the beneficiary, to surrender or cancel the policy, to assign the policy, to revoke an assignment, to pledge the policy for a loan, or to obtain from the insurer a loan against the surrender value of the policy,
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A only, since he passes half of his income (the interest) to Sonny that half of the interest will be subject to the gift tax. Mr. A is allowed a $14K exemption yearly and assuming the interest is less than $14K a year there will be no gift tax consequence on the interest either.

b. Having made no contributions to the joint account, the entire $100K will be passed on to Mr. A’s gross estate. 2040(a)

3. When valuating real estate comparable method sales and capitalization of income methods are used. Capitalization of income method is the common method used for rental properties. Historical cost does come into play if the property recently changed hands, replacement or reproduction costs may be taken into consideration when it comes to the buildings. Regs state that property will not be valued at assessment value for local tax purposes unless the assessed value is fair representation of FMV. Reg. 20.2031-1(b) and 25.2512-1.

4. Parcel joint tenancy

a. $400K would be included in Parent’s GE 2040(a) “except clause” for it to be included in Child GE because his share must show “to have originally belonged to such other person and never to have been received or acquired by the latter from the decedent for less than an adequate and full consideration in money or money’s

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