Beneficiaries✓ Verified · outline & fact-checked · Sep 2026Difficulty 3/5
For federal estate tax purposes, the death proceeds of a life insurance policy are included in the insured's gross estate when the insured:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Under IRC Section 2042, life insurance proceeds are included in the insured's gross estate if the insured owned the policy or held any incidents of ownership - such as the right to change the beneficiary, borrow against the cash value, or surrender the policy - at the time of death. Ownership is the controlling factor, not who paid premiums or who is named as beneficiary. Naming beneficiaries alone does not cause inclusion. This is why estate planning often uses an irrevocable life insurance trust to remove both ownership and incidents of ownership from the insured.
Why the other options are wrong
- B) Merely being the insured or naming the beneficiaries does not create estate inclusion. Ownership and incidents of ownership are the tests.
- C) Premium payment by the insured is not the controlling test for estate inclusion. Ownership and incidents of ownership at death determine it.
- D) Ownership at death is required. A policy the insured does not own is not included in the gross estate simply because it is in force.
Memory hook
Own it at death, or control it, and it counts in your estate.