628 / If a decedent purchased an annuity on the life of another person, will the value of the contract be includable in his or her gross estate?

If a decedent has named himself or herself as refund beneficiary, the value of the refund may be taxable in the decedent’s estate as a transfer intended to take effect at death.² This rule is not applicable, however, unless the value of the refund exceeds 5 percent of the value of the annuity immediately before the donor’s death. Moreover, if the donee-annuitant has the power to surrender the contract or to change the refund beneficiary, it would appear that such a power would preclude taxation in the donor’s estate as a transfer to take effect at death.³

Where a decedent retains ownership of a contract until death, the value in the decedent’s gross estate apparently would be the cost of a comparable contract at the time of the decedent’s death. In one case, however, where a decedent and his wife paid one-half the cost of an annuity for their son, reserving to themselves the right to surrender the contract, only one-half the surrender value was included in the decedent’s gross estate.⁴