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IRS Rules Life Insurance Policies Not Includible For Estate Tax If Decedent Did Not Retain Power Of Appointment

In an IRS Letter Ruling, the IRS decided that two life insurance policies were not includible in the gross estate of a decedent.  In the case, two trusts owned a limited partnership which owned two life insurance policies.  On the two life insurance policies, the decedent removed the powers of appointment and conversion from himself and placed the powers in his sister and his wife.  Because the insured did not have power of appointment within himself, the insurance policies were not includible in his estate and were therefore not subject to estate tax.

Editor’s Comment

It pays to have professionals who know what they are doing.  Here, had the decedent retained the right of appointment, these life insurance policies would have become entirely taxable to the estate, and would have been absolutely no more benefit to the decedent’s estate.  When shopping for life insurance policies and setting them up, you must pay attention to the potential value of the estate, the cash position of the estate, and legal contingencies with life insurance policies, including power of appointments.

By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors