§ 93.131. Payments from employment benefit plans and life insurance contracts.
(a) Scope and application. The purpose of this section is to establish rules relating to the circumstances under which payments received from employment benefit plans and life insurance contracts are subject to the inheritance and estate tax.
(b) Definitions. The following words and terms, when used in this section, have the following meanings, unless the context clearly indicates otherwise:
Employment benefit plans—Payments under pension, stock bonus, profit-sharing and other retirement plans including, but not limited to, H. R. 10 plans, individual retirement accounts, individual retirement annuities and individual retirement bonds.
Life insurance contracts—A contract possessing features of risk shifting and risk distribution, between the holder of a policy and an insurance company under which the company agrees, in return for the payment of premiums, to pay a specified sum to the designated beneficiaries upon the death of the insured. For purposes of this section, a life insurance contract does not include a matured endowment policy or a policy where the decedent’s only rights, at the time of his death, were to receive a refund under the policy.(c) Life insurance contract.
(1) For the estate of a decedent dying prior to December 13, 1982. Payments received from a life insurance contract are exempt from the inheritance tax, unless the payments are made to the estate of the decedent. Payments made to the estate of the decedent from a life insurance contract are subject to the tax.
(2) For the estate of a decedent dying on December 13, 1982 and thereafter. Payments received from a life insurance contract are exempt from the inheritance tax whether they are paid to the estate or some other beneficiary.
(d) Employment benefit plans.
(1) General rule. Payments received from employment benefit plans will be exempt from the inheritance tax to the extent that one of the following exist:
(i) The payments are exempt from the Federal estate tax under the Internal Revenue Code of 1954 (26 U.S.C.A. § § 1—9602), a supplement to the Code or another similar provision in effect for Federal estate tax purposes.
(ii) The payment would be exempt for Federal estate tax purposes if it had not been made in a lump-sum or other nonexempt form of payment, and the payment is made in a lump-sum or other nonexempt form of payment.
(iii) The decedent during his lifetime did not have the right to possess, including proprietary rights at termination of employment, enjoy, assign or anticipate the payments made. A decedent will be considered as not having the right to possess, enjoy, assign or anticipate the employment benefit plan payments where the only rights under the plan are to designate a beneficiary or contingent beneficiaries, and to receive a regular monthly payment under the plan. The possession of either of these rights, alone or together, will not subject the plan to the inheritance tax, as long as no other rights exist.
(2) Exceptions.
(i) To the extent that a decedent, before death, possessed rights in an employment benefit plan beyond those described in paragraph (1)(iii), payments received from the plan will be subject to the tax unless exempted under paragraph (1)(i) or (ii) or otherwise exempt by statute. Rights under a plan which would subject the plan’s payments to the tax include, but are not limited to:
(A) Right to withdraw benefits, including the right to withdraw only upon payment of a penalty or additional tax if the penalty or additional tax is smaller than 10% of the withdrawal.
(B) Right to borrow monies from the employment benefit plan.
(C) Right to assign the benefits of the employment benefit plan to another.
(D) Right to pledge the plan or its benefits.
(E) Right to anticipate the benefits of the employment benefit plan other than in regular monthly installments.
(F) Right by contract or otherwise, to materially alter the employment benefit plan.
(ii) Payments from an employment benefit plan that are received by the estate of a decedent who died prior to December 13, 1982, are subject to tax.
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