Problem 7

7(1) In year 1, D entered into a contract with an insurance company under which D paid the company $750,000 then and there; they agreed that beginning in year 10, the company would pay D $9,000 per month for life and, after D's death, the company would make like payments to D's spouse S for as long as S should live. However, D died in year 8, survived by S. d. Would the results in question (l)(a), above, be different if, pursuant to a "qualified" pension plan, D's employer had purchased the contract for D and S?

No under Current law: there is no special treatment for qualified plans and the entire amount would be included in the gross estate. (see a and c). prior to October 26, 1986 yes but now all that is gone but if you do have an old pension plan you might want to take a look at this. This §2039(c) is repealed but it could still have viability.

7(1) In year 1, D entered into a contract with an insurance company under which D paid the company $750,000 then and there; they agreed that beginning in year 10, the company would pay D $9,000 per month for life and, after D's death, the company would make like payments to D's spouse S for as long as S should live. However, D died in year 8, survived by S. a. Apply Section 2039 to the facts above.

The entire value of S's annuity would be included in D's GE, since D paid the entire price for the annuity;

7(1) In year 1, D entered into a contract with an insurance company under which D paid the company $750,000 then and there; they agreed that beginning in year 10, the company would pay D $9,000 per month for life and, after D's death, the company would make like payments to D's spouse S for as long as S should live. However, D died in year 8, survived by S. e. What is S's income tax basis in the right to receive the future payment in question (l)(d), above? If D intended to make charitable donations at death, should D consider leaving other property to S and the pension proceeds to charity?

The right to survivorship annuity payment, even though fully included in D's gross estate under 2039 would constitute an item of income in respect of decedent (IRD), and it would receive no § 1014 (a)(1) step-up basis. §§ 691 (d)(1), 1014 (c). Thus, assuming there were no nondeductible employee contributions, the right to the annuity would have a 0 income tax basis as the income was deferred as to D. Since such items, (especially survivorship interests in qualified deferred compensation plans are subject to both estate tax (note § 2056) and income tax, it might be advisable to transfer such rights to charity and transfer other property with a § 1014(a)(1) stepped-up basis to one's surviving spouse or other legatee.

7(1) In year 1, D entered into a contract with an insurance company under which D paid the company $750,000 then and there; they agreed that beginning in year 10, the company would pay D $9,000 per month for life and, after D's death, the company would make like payments to D's spouse S for as long as S should live. However, D died in year 8, survived by S. b. What is the result in question (l)(a), above, if S had paid $250,000 of S's funds toward the $750,000 cost of the contract?

Whatever 2/3 of the value of the annuity will be included in the GE

7(1) In year 1, D entered into a contract with an insurance company under which D paid the company $750,000 then and there; they agreed that beginning in year 10, the company would pay D $9,000 per month for life and, after D's death, the company would make like payments to D's spouse S for as long as S should live. However, D died in year 8, survived by S. c. What is the result in question (l)(a), above, if $375,000 of the cost had been paid by D's employer?

§ 2039 (b) - last sentence states amounts paid by a person's employer are treated as paid by the employee.