Question

Richard's father, Joseph Leder, died in 2014 and was insured by a $1,000,000 policy purchased in 2011 (within three years of his death). Richard's mother was the applicant-owner and beneficiary. Joseph Leder signed as the insured. Monthly premium payments ($3,900) were paid by a corporation wholly owned by Joseph. Was the life insurance included in the estate of Joseph?
I. Yes, it was included because the corporation paid the premium.
II. Yes, it was included because Joseph died within three years of the policy issue.
III. No, the policy was excluded from Joseph's estate.
IV. No, the corporations can pay premiums for their key employees, and the policies will always be excluded from their estates.
A. I
B. I, II
C. III
D. III, IV
E. IV

Answer 1

Answer:

C) III

• III. No, the policy was excluded from Joseph's estate.

Explanation:

It doesn't matter who pays the policy's premiums, what matters is who is the beneficiary of the policy. If the proceeds of the policy are paid to the insured's estate, then they are part of it, but if the proceeds are paid to another beneficiary, then they are not included in the estate.

Since Joseph's wife was the owner and beneficiary of the policy, the proceeds will be paid directly to her. The advantage here is that proceeds from the life insurance policy  are not taxed as income, but if Joseph's state was larger than $5.43 million, then estate taxes might apply.