For 706 - Insurance question

[Kea]

I just want to make sure I'm reading the instructions correctly. They say to report insurance proceeds if they for the benefit of the estate. It states that there must be an obligation to use proceeds to pay taxes, debts or charges. The other reportable insurance is if it is receivable by a beneficiary other than the estate. In this case the decedent had to be owner of the policy.

In my client's case, the only insurance and death benefits were from the VA and pension. In neither case was there any requirement about how to use the money and the client did not own either policy. The only control factor the decedent had was designation of the beneficiary.

When listing the incidents of ownership in a policy, between the next to last incident and the last incident, it states "AND." However in the paragraph leading to the list of incidents, it states the incidents of ownership in a policy include ANY of the items listed.

I'm thinking they shouldn't be included because of the "AND." Also decedent had no control of the policy except selecting the beneficiary. Who else would pick the beneficiary? (OK there are those policies that some companies take out on their employees and then name the company as beneficiary. -- Those definitely should not be included on a 706 Sch J.) Decedent couldn't sell it, cancel it, use it for a loan or anything else.

If either or both of these benefits are included, the description wants the name of the insurance company and the policy #. Where would the client find this since the decedent did not own either policy?

Thanks.

[baystorm]

I just want to make sure I'm reading the instructions correctly. They say to report insurance proceeds if they for the benefit of the estate. It states that there must be an obligation to use proceeds to pay taxes, debts or charges. The other reportable insurance is if it is receivable by a beneficiary other than the estate. In this case the decedent had to be owner of the policy.

In my client's case, the only insurance and death benefits were from the VA and pension. In neither case was there any requirement about how to use the money and the client did not own either policy. The only control factor the decedent had was designation of the beneficiary.

When listing the incidents of ownership in a policy, between the next to last incident and the last incident, it states "AND." However in the paragraph leading to the list of incidents, it states the incidents of ownership in a policy include ANY of the items listed.

I'm thinking they shouldn't be included because of the "AND." Also decedent had no control of the policy except selecting the beneficiary. Who else would pick the beneficiary? (OK there are those policies that some companies take out on their employees and then name the company as beneficiary. -- Those definitely should not be included on a 706 Sch J.) Decedent couldn't sell it, cancel it, use it for a loan or anything else.

If either or both of these benefits are included, the description wants the name of the insurance company and the policy #. Where would the client find this since the decedent did not own either policy?

Thanks.

[baystorm]

I just want to make sure I'm reading the instructions correctly. They say to report insurance proceeds if they for the benefit of the estate. It states that there must be an obligation to use proceeds to pay taxes, debts or charges. The other reportable insurance is if it is receivable by a beneficiary other than the estate. In this case the decedent had to be owner of the policy.

In my client's case, the only insurance and death benefits were from the VA and pension. In neither case was there any requirement about how to use the money and the client did not own either policy. The only control factor the decedent had was designation of the beneficiary.

When listing the incidents of ownership in a policy, between the next to last incident and the last incident, it states "AND." However in the paragraph leading to the list of incidents, it states the incidents of ownership in a policy include ANY of the items listed.

I'm thinking they shouldn't be included because of the "AND." Also decedent had no control of the policy except selecting the beneficiary. Who else would pick the beneficiary? (OK there are those policies that some companies take out on their employees and then name the company as beneficiary. -- Those definitely should not be included on a 706 Sch J.) Decedent couldn't sell it, cancel it, use it for a loan or anything else.

If either or both of these benefits are included, the description wants the name of the insurance company and the policy #. Where would the client find this since the decedent did not own either policy?

Thanks.

I must admit that it has been a year or two since I had to file a 706 - but based upon your post I would say that the insurance proceeds from the VA would not have to be included on the return. All assets that a decendent had "incidents of ownership and control over" are included in the gross taxable estate of a decendent. If he could not change a beneficiary, assign the policy, cash in the policy, take a loan out against the policy - then he would not have incidents of owernship and control over the policy and as such the proceeds should not be included on the 706. In any event I assume the death benefits are not that much - by the way are you also an attorney?

good luck

[Kea]

No, I'm not an attorney. I'm just trying to plod through my 1st 706.

I do need to clarify one point. The decedent COULD change the beneficiary on both benefits (VA and pension). But that was the only control factor. The amounts are relatively small -- $5000 from the VA & $10000 from the retirement plan.

It just seems like those 2 sections of the 706 instructions contradict each other.

[baystorm]

No, I'm not an attorney. I'm just trying to plod through my 1st 706.

I do need to clarify one point. The decedent COULD change the beneficiary on both benefits (VA and pension). But that was the only control factor. The amounts are relatively small -- $5000 from the VA & $10000 from the retirement plan.

It just seems like those 2 sections of the 706 instructions contradict each other.

Generally if the decedent could change the beneficiary then he had 'incidents of ownership' over the policy - look at code section 2042(2); Reg section 20.2042-1©

good luck

[Kea]

Thanks for your help. I was mainly confused by one portion of the instructions saying "ANY" of the incident and then the list ending in "AND" so that all incidents should be included. Your reference indicates that "ANY" is the important term

I'll include it unless I find out there was some reason decedent couldn't choose the beneficiary. I can't imagine that being the case.

Thanks again.

[Kea]

But, now what do I put in the description for the Insurance Company & Policy #?