incidents of ownership

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An incident of ownership denotes the possession or retainment of certain rights or benefits over property. This term is often used in life insurance or property disputes. For example, the right to the rent that comes from a mortgaged property is one of the most common forms of incident of ownership. For example, in New Jersey, a mortgagor is entitled to all incidents of ownership, including the right to receive rent. However, if the mortgagor defaults or breaches any mortgage condition, then the mortgagee obtains all incidents of ownership (or common law title) and right to possession of the mortgaged premises. 

For life insurance policies, an incident of ownership is a tax consideration for beneficiaries (see Internal Revenue Code Section 2042). This includes, among other rights, the right of the insured or their estate to the economic benefits of the insurance; the power to change the beneficiary; and the power to surrender or cancel the policy. The Sixth Circuit has further explained that the term 'incidents of ownership' "is not limited in its meaning to ownership of the policy in the technical legal sense" but references "the right of the insured or his estate to the economic benefits of the policy." 

On the other hand, powers or rights that are irrelevant to affecting one's right to any economic benefit for himself from the property in question are not incidents of ownership. For example, the Third Circuit has held that where the only power a decedent possessed over a policy was controlling the time at which proceeds would be received, and not the amount, such power did not constitute an incident of ownership. 

[Last updated in April of 2022 by the Wex Definitions Team]