What is the outcome of not including life insurance proceeds in the gross estate?

When life insurance proceeds are excluded from the gross estate, it means that they are not counted towards the total value of the estate for tax purposes. This is significant because life insurance proceeds can be quite substantial, and their treatment can affect the tax burden of the estate.

If these proceeds are not included in the gross estate, the estate misses out on the opportunity to benefit from the tax exclusion available for life insurance. Typically, life insurance proceeds payable to a named beneficiary are not included in the deceased's gross estate under certain conditions, but if the proceeds aren't managed appropriately, the estate could incur additional taxes.

Other outcomes, such as incurring penalties or facing audits, generally relate to compliance issues rather than the treatment of life insurance proceeds specifically. The tax credit mentioned and the implications therein rely on proper estate management and inclusion of all necessary components in the gross estate, so excluding the life insurance does not maximize its potential benefits under tax law. Thus, the key outcome here is that the estate will not benefit from the exclusion, directly impacting the tax liability associated with the overall estate.