Does Life Insurance Go Into Probate? 
life insurance proceeds are payable to an insureds estate , is their value includable in the insureds estate - The entire value of the proceeds must be included in the insureds gross estate even if the insured possessed no incident of ownership in the policy , and paid none of the premiums . -LSB- 1 -RSB- But proceeds payable to an executor in his or her individual capacity rather than as executor for the insureds estate were not treated as payable to the insureds estate by the Tax Court . -LSB- 2 -RSB- -LSB- 1 -RSB- . IRC Sec . 2042 -LRB- 1 -RRB- ; Est. of Bromley v. Comm. , 16 BTA 1322 -LRB- 1929 -RRB- . -LSB- 2 -RSB- . Est. of Friedberg v. Comm. , TC Memo 1992-310 . When are life insurance proceeds that are payable to a beneficiary other than the insureds estate includable in the insureds estate ? Proceeds are includable in an insureds gross estate if the insured legally possessed and could legally exercise any incidents of ownership at the time of the insureds death . It does not matter that the insured did not have possession of the policy and therefore was unable to exercise his or her ownership rights at the time of his or her death , -LSB- 1 -RSB- or that the insured was unable as a practical matter to effect any change in the policy because the policy was collaterally assigned . -LSB- 2 -RSB- The proceeds are includable even if the insured can not exercise his or her ownership rights alone , but only in conjunction with another person . -LSB- 3 -RSB- It has been held that an insured did not possess incidents of ownership where the insured had paid no premiums , did not regard the policy as the insureds own , and had made an irrevocable designation of beneficiary and mode of payment of proceeds . -LSB- 4 -RSB- But even if the proceeds are payable to a beneficiary other than the insureds estate , and the insured possesses no incidents of ownership in the policy , the proceeds are nevertheless includable in the insureds gross estate if they are receivable for the benefit of the insureds estate . Even though the insured retains no incidents of ownership in the policy , the proceeds may be includable in the insureds estate if the insured has transferred the policy within three years before the insureds death . -LSB- 1 -RSB- . Comm . v. Est. of Noel , 380 U.S. 678 -LRB- 1965 -RRB- . -LSB- 2 -RSB- . Est. of Goodwyn v. Comm. , TC Memo 1973-153 . -LSB- 3 -RSB- . IRC Sec . 2042 -LRB- 2 -RRB- ; Goldsteins Est. v. U.S. , 122 F. Supp . 677 -LRB- Ct. . Cl . 1954 -RRB- . -LSB- 4 -RSB- . Morton v. U.S. , 29 AFTR 2d 72-1531 -LRB- 4th Cir . 1972 -RRB- . Can an insured remove existing life insurance from his or her gross estate by an absolute assignment of the policy ? Yes , assuming the insured lives for at least three years after the assignment , the insured assigns all incidents of ownership , and the assignee is not legally obligated to use the proceeds for the benefit of the insureds estate . -LSB- 1 -RSB- If the form of the assignment reserves any incidents of ownership to the insured , the proceeds may be included in the insureds gross estate despite the insureds clear intention to transfer all ownership rights . -LSB- 2 -RSB- It has been held that where the insured had paid no premiums and had never treated the policy as his or her own , the insureds irrevocable designation of beneficiaries and mode of payment of proceeds was an effective assignment of all of the insureds incidents of ownership in the policy . -LSB- 3 -RSB- The amount of any premiums paid on the assigned policy by the insured may be included to the extent they are paid within three years of death . A reversionary interest in a policy is an incident of ownership if , immediately before the insureds death , the value of the reversionary interest is worth more than five percent of the value of the policy . -LSB- 4 -RSB- The insured will have no such reversionary interest , however , if the policy is purchased and owned by another person , or if the policy is absolutely assigned to another person by the insured . Regulations state that the term reversionary interest does not include the possibility that a person might receive a policy or its proceeds by inheritance from another persons estate , by exercising a surviving spouses statutory right of election , or under some similar right . They also state that , in valuing a reversionary interest , interests held by others that would affect the value must be taken into consideration . For example , a decedent would not have a reversionary interest in a policy worth more than five percent of the policys value , if , immediately before the decedents death , some other person had the unrestricted power to obtain the cash surrender value of the policy ; the value of the reversionary interest would be zero . -LSB- 5 -RSB- An insured was treated as holding a reversionary interest in a policy held in a trusteed buy-sell arrangement where the insured was considered to have transferred the policy to the trust and retained the right to purchase the policy for its cash surrender value upon termination of the buy-sell agreement . -LSB- 6 -RSB- However , a policy held in a trusteed buy-sell arrangement would not be includable in an insureds estate under IRC Section 2042 where -LRB- 1 -RRB- proceeds would be received by a partners estate only in exchange for purchase of the partners stock , and -LRB- 2 -RRB- all incidents of ownership would be held by the trustee of the irrevocable life insurance trust . -LSB- 7 -RSB- -LSB- 1 -RSB- . Treas. Regs . 20.2042-1 -LRB- b -RRB- -LRB- 1 -RRB- , 20.2042-1 -LRB- c -RRB- -LRB- 1 -RRB- ; Lamade v. Brownell , 245 F. Supp . 691 -LRB- M.D. Pa. 1965 -RRB- . -LSB- 2 -RSB- . Est. of Piggott v. Comm. , 340 F. 2d 829 -LRB- 6th Cir . 1965 -RRB- . -LSB- 3 -RSB- . Morton v. U.S. , 29 AFTR 2d 72-1531 -LRB- 4th Cir . 1972 -RRB- . -LSB- 4 -RSB- . IRC Sec . 2042 -LRB- 2 -RRB- . -LSB- 5 -RSB- . Treas. Reg . 20.2042-1 -LRB- c -RRB- -LRB- 3 -RRB- . -LSB- 6 -RSB- . TAM 9349002 . -LSB- 7 -RSB- . Let . Rul . 9511009 . 