How to Complete Schedule D for Estate Form 706
An estate administrator uses Schedule D: Insurance on the Decedent’s Life, when filing a federal estate tax return (Form 706), to report any and all policies on the life of the decedent. Policies that benefit the estate directly should be included in the estate. If the decedent held or regained any rights to alter (incidents of ownership) a policy, that policy may also be includible in the estate.
All policies should be listed on this schedule, whether or not they are includible in the gross estate for estate tax purposes. Insurance which the decedent owned on someone else’s life is includible on Schedule F.
The following types of insurance are includible in the gross estate:
The full amount of the proceeds of insurance on the decedent’s life receivable by the estate or usable for the benefit of the estate: If any legally enforceable obligation on the beneficiary to pay taxes, debts, or other charges of the estate stands, the policy is includible. It doesn’t matter who the owner and beneficiary of the policy are or who paid the premiums.
Insurance on the decedent’s life not payable to the estate and not usable for its benefit: If the decedent held any incidents of ownership in the insurance, it goes in the taxable estate.
The IRS gives specific examples of the rights that count as incidents of ownership. These rights include:
The right to name and change the beneficiary
The right to assign the policy to another or to revoke an assignment
The right to surrender or cancel the policy
The right to pledge the policy as collateral for a loan or to obtain a loan against the surrender value from the insurance company
A reversionary interest in the policy if the reversionary interest was more than 5 percent just before the death of the decedent. An interest is reversionary if the decedent gains or regains any of the rights listed above, such as the right to name the beneficiary, if the beneficiary predeceases the decedent, or some other stated contingency occurs.
All the information you need to complete Schedule D is included on the IRS Form 712, Life Insurance Statement, which you must request from each life insurance company. Request Form 712 when you request the proceeds of the policy from the insurance company.
In the description column on Schedule D, refer to Form 712 as an exhibit and attach it to the return as such. Even if a policy on the decedent’s life isn’t includible, list it on this schedule. Include the same information as you would for any other policy, but don’t include a value in the value column. In your description of this policy, explain why the policy isn’t includible.