Which transfer is includable in the donor's gross estate when made within 3 years of death?

Which transfer is includable in the donor's gross estate when made within 3 years of death?

• A. Gift of $9,800 cash to daughter.
• B. Gift of $5,000 stock in a closely held company to parent.
• C. Gift of $8,000 cash value life insurance policy to son.
• D. Gift of $10,000 cash to friend.

Answer: (C)

The key idea is the 3-year lookback rule in estate tax: gifts or property transfers made by the decedent within three years before death are pulled back into the gross estate for tax purposes. A life insurance policy is a special case: if the decedent owned the policy and transfers ownership within that 3-year window, the policy’s value (including its cash surrender value) is included in the gross estate. That makes the transfer of a cash-value life insurance policy to the son includable. Gifts of cash or stock to others are transfers that would be included only if death occurs within three years after those transfers; without knowing that death timing, they’re not automatically includable in the gross estate. Thus, the transfer of the cash-value life insurance policy is the includable one in this scenario.

The key idea is the 3-year lookback rule in estate tax: gifts or property transfers made by the decedent within three years before death are pulled back into the gross estate for tax purposes. A life insurance policy is a special case: if the decedent owned the policy and transfers ownership within that 3-year window, the policy’s value (including its cash surrender value) is included in the gross estate. That makes the transfer of a cash-value life insurance policy to the son includable.

Gifts of cash or stock to others are transfers that would be included only if death occurs within three years after those transfers; without knowing that death timing, they’re not automatically includable in the gross estate. Thus, the transfer of the cash-value life insurance policy is the includable one in this scenario.