incidents of ownership
An incident of ownership refers to the possession or retention of certain rights or benefits over life insurance or property. In property law, an incident of ownership may include the right to collect rent from mortgaged property. For example, in New Jersey, a mortgagor is entitled to incidents of ownership, including the right to receive rent, until default or breach of mortgage conditions. Upon default, the mortgagee acquires incidents of ownership (common law title) and the right to possession of the mortgaged premises.
In life insurance, incidents of ownership are significant for federal estate tax purposes under Internal Revenue Code § 2042. These include rights such as the power to change the beneficiary, the right to surrender or cancel the policy, and the ability of the insured or their estate to obtain economic benefits from the policy. Courts have clarified that the concept is not confined to technical ownership. In First National Bank of Midland v. United States, 423 F.2d 1286 (5th Cir. 1970), the Court explained that incidents of ownership extend to rights that provide the insured or the estate with economic benefits from the policy. Similarly, in Estate of Fruehauf v. Commissioner, 427 F.2d 80 (6th Cir. 1970), the Court emphasized that the term “is not limited in its meaning to ownership of the policy in the technical legal sense” but encompasses the insured’s rights to policy benefits.
Rights that do not affect the insured’s ability to obtain economic benefit are not incidents of ownership. In Estate of Connelly v. United States, 551 F.2d 545 (3d Cir. 1977), the Court held that a decedent’s power to control only the timing of benefit distribution, without affecting the amount, was insufficient to constitute an incident of ownership.
[Last reviewed in September of 2025 by the Wex Definitions Team]
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