What is the implication of having ownership or borrowing rights in a life insurance policy upon the decedent's death?

When a life insurance policy is owned by an individual who passes away, the value of that policy is included in the gross estate for tax purposes. This inclusion happens because the death benefit payable under the policy is considered an asset of the decedent's estate. The insurance proceeds will contribute to the overall value of the estate, which can affect estate taxes that may be owed.

In essence, the existence of ownership or borrowing rights implies that the total death benefit and any cash value accumulations from the policy are accounted for when calculating the gross estate. This can lead to a situation where the total value of the estate increases, potentially pushing it into a higher tax bracket or resulting in a greater tax liability for the estate.

Understanding this concept is crucial for estate planning, as it can influence decisions regarding the ownership of life insurance policies and how they are leveraged to contribute to an estate, whether through borrowing against the policy or simply as part of the estate's total value at death.