Simple English definitions for legal terms
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An incident of ownership refers to any right of control that a person has over a life insurance policy that has been transferred. This control allows the policy's proceeds to be included in the person's estate for estate-tax purposes. The rights that come with an incident of ownership include the ability to change the policy's beneficiaries, borrow against the policy, assign the policy, and cancel the policy.
Incident of Ownership
Incident of ownership refers to any right of control that can be exercised over a transferred life-insurance policy. This control allows the policy's proceeds to be included in a decedent's gross estate for estate-tax purposes. The incidents of ownership include the rights to change the policy's beneficiaries and to borrow against, assign, and cancel the policy.
The examples illustrate how the incidents of ownership can affect the taxation of life-insurance policy proceeds. If the original policyholder retains any control over the policy, such as the right to change beneficiaries or cancel the policy, the proceeds may be subject to estate tax upon the policyholder's death.