Question

Five years ago, Debora gave a life insurance with a $750,000 death benefit to her daughter, Linda. At the time of gift, the value of the life insurance was $65,000, and Debora paid $10,000 in federal gift tax. Debora passed away this year. What amount will be included in her federal gross estate related to this life insurance policy.

Answer 1

As given in question, five years ago, Debora gave a life insurance with a $750,000 death benefit to her daughter, Linda and paid $10,000 in federal gift tax. At the time of purchase, the value of the life insurance was $65,000. Eventually, Deboa expired this year, but because Debora died more than five years after the gratuitous transfer of the life insurance policy, Debora's federal gross estate would not include any amount related to this life insurance policy. As Life insurance proceeds on policies gratuitously transferred within three years of death are included in the gross estate of the donor and Gift tax paid within 3 years of death are included in the federal gross estate as well under the gross-up rule.