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Rev. Rul. 79-429


Rev. Rul. 79-429; 1979-2 C.B. 321

DATED
DOCUMENT ATTRIBUTES
  • Cross-Reference

    26 CFR 20.2031-8: Valuation of certain life insurance and annuity

    contracts; valuation of shares in an open-end investment company.

    (Also Section 2033; 20.2033-1.)

  • Code Sections
  • Language
    English
  • Tax Analysts Electronic Citation
    not available
Citations: Rev. Rul. 79-429; 1979-2 C.B. 321
Rev. Rul. 79-429

ISSUE

What is the value that is includible in a decedent's gross estate for an insurance policy owned by a decedent on the life of another person when the policy was purchased under a "split-dollar" arrangement?

FACTS

The decedent's spouse, A, was an employee of a corporation. In 1974, the corporation and the decedent entered into an arrangement to purchase a whole life insurance policy on the life of A.

Under the arrangement, the corporation paid that portion of the annual premium that was equal to the amount of the increase in the cash surrender value of the policy during the year. The decedent paid the balance. The decedent was designated as the owner of the policy and executed a collateral assignment to the corporation of the decedent's interest in the policy to the extent of the total of premium monies that had been paid by the corporation at any given time. The decedent had the right to name the beneficiary of the balance of the insurance proceeds. Upon A's death, the corporation is entitled to receive out of the proceeds of the policy an amount equal to the funds it provided for premium payments. The corporation can only seek recourse from the insurance policy for monies it has advanced and neither the decedent nor the decedent's estate will be liable for such monies.

The decedent died on January 21, 1977. At that time the total of premiums paid by the corporation was $9,984. The interpolated terminal reserve and proportionate part of the last premium paid before the date of the decedent's death that covers the period extending beyond that date total $14,782.

LAW AND ANALYSIS

Section 2033 of the Code provides that the value of the gross estate shall include the value of all property to the extent of the interest therein of the decedent at the time of the decedent's death.

Section 2031(a) of the Code provides that the value of the decedent's gross estate shall be determined by including, to the extent provided for in section 2033 through section 2045, the value at the time of the decedent's death of all property.

An interest owned by a decedent in an insurance policy on another person's life is an asset that is includible in the decedent's gross estate. See, for example, Rev. Rul. 78-137, 1978-1 C.B. 280. For purposes of section 2031(a), a life insurance policy owned by a decedent on the life of another person is valued at the replacement cost of the policy. Rev. Rul. 78-137, cited above. However, where the policy has been in force for some time and further premium payments are to be made at the time of the decedent's death, the value may be approximated by adding to the interpolated terminal reserve at the date of the decedent's death the proportionate part of the gross premium last paid before the date of the decedent's death that covers the period extending beyond that date. Section 20.2031-8(a)(2) of the regulations.

In the present situation, the decedent had an interest in the insurance policy to the extent of its value as approximated under section 20.2031-8(a)(2) of the regulations reduced by the amount of the corporation's interest in the policy.

HOLDING

Since the policy had been in force for some time and further premium payments were to be made after the decedent's death, the value of the policy that is includible on the decedent's gross estate, for purposes of section 2031(a), is the interpolated terminal reserve plus the proportionate part of the gross premium paid before the date of the decedent's death that covers the period extending beyond that date, or $14,782, reduced by the amount of the corporation's interest in the policy, $9,984, or $4,798.

DOCUMENT ATTRIBUTES
  • Cross-Reference

    26 CFR 20.2031-8: Valuation of certain life insurance and annuity

    contracts; valuation of shares in an open-end investment company.

    (Also Section 2033; 20.2033-1.)

  • Code Sections
  • Language
    English
  • Tax Analysts Electronic Citation
    not available
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