Right to Policy Dividends Alone Won't Bring Insurance Proceeds to Estate

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An insured's right to receive life insurance policy dividends by itself is not an incident of ownership for purposes of tax code Section 2042—so policy proceeds are not includible in the insured's estate at death, the Internal Revenue Service Office of Chief Counsel said in a chief counsel advice memorandum released July 12.
The office in CCA 201328030 distinguished the right to dividends on a policy from the right to its economic benefits, saying dividends merely serve to reduce the premiums due to keep the insurance in force.
The policies considered in the CCA were purchased in connection with an insured's divorce settlement, for the sole benefit of his former spouse. Now deceased, the insured paid all premiums and could not borrow against or pledge the policies, although he was entitled to the policy dividends.


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