Eleanor Whitcombe, a US citizen, died in 2024. At her death she owned a life insurance policy on her own life that paid 800,000 dollars to her adult son, a brokerage account held solely in her name, and a holiday cottage she had transferred to a revocable living trust during her lifetime, retaining the power to revoke it. Which of these is excluded from her federal gross estate on Form 706?
- AThe life insurance proceeds, because they were paid directly to a named beneficiary rather than to the estate.
- BThe holiday cottage in the revocable living trust, because legal title had already passed to the trust before death.
- CThe solely owned brokerage account, because liquid investment accounts pass outside the gross estate.
- DNone of these three assets is excluded, because each is brought into her gross estate under a separate inclusion rule on these facts. Correct
Why A is wrong: It is tempting because policy proceeds payable to a named beneficiary bypass probate, but probate avoidance does not control estate inclusion. Because the decedent held incidents of ownership in a policy on her own life, the proceeds are pulled into the gross estate under Section 2042 regardless of who received them.
Why B is wrong: Funding a revocable trust feels like a completed transfer that removes the asset from the estate, but the retained power to revoke makes the transfer incomplete for estate-tax purposes. Section 2038 includes property over which the decedent kept the power to alter, amend, or revoke, so the cottage stays in the gross estate.
Why C is wrong: Some candidates assume only real property is taxed in the estate, but the form of the asset is irrelevant. A brokerage account titled solely in the decedent's name is property she owned at death and is included under Section 2033.
Why D is correct: Correct. Property owned solely by the decedent is included under Section 2033, life insurance on the decedent's life with retained incidents of ownership is included under Section 2042, and revocable-trust property is included under Section 2038, so every listed asset is part of the gross estate.