IRC §2042 · 26 U.S.C. §2042
IRC §2042: Proceeds of Life Insurance in the Gross Estate
IRC §2042 includes life insurance in the gross estate when the decedent held incidents of ownership — or the proceeds were payable to the estate. The statute behind every ILIT.
What it governs
- Any incident of ownership at death — change beneficiary, borrow, surrender — inclusions proceeds
- Proceeds payable to the estate or for its benefit are included regardless
- Employer-owned and properly structured ILIT-held policies escape §2042
- Transfer the policy 3+ years before death or §2035 claws it back anyway
In the GuideFull treatment in Chapter 15 of the Guide — THE TAX CUTTERY® Guide to Federal Income Taxation, Professional Edition (564 pages, 24 chapters).
Related sectionsIRC §2035 — the 3-year trap on insurance transfers · IRC §2010 — the exclusion that may make all of this moot
From the practiceStart the consultation — Paul on video, one question at a time →
Questions this section answers
- Is life insurance taxable to my estate?
- Only if you held incidents of ownership — the right to change beneficiaries, borrow, or surrender. An ILIT that owns the policy from issue keeps it out.
- My company owns the policy on my life — included?
- Not under §2042 as to you, since you hold no incidents — though the proceeds count in the company’s value for estate purposes.
- I transferred my policy to my kids two years ago — safe?
- No — §2035 pulls insurance transferred within 3 years of death back in. The ILIT transfer needs to survive three years.
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The Guide treats 149 Code sections across 24 chapters — every claim verified against primary sources.
Get the Guide — $299