I have an estate where insurance policies were paid and I want to make sure that my interpretation is correct. There are three different situations. 1 The deceased was in al three situations the insured life of the policy. 1 The deceased and her daughter
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
Your request relates to whether the proceeds of policies are deemed property in the estate of the deceased. For purposes of the guidance that follows we accepted that the policies are “domestic policies”. We are not sure that we agree with your view with respect to policy 1 and 3.
The general rule is that the proceeds of these policies will be property which is deemed to be property of the deceased, unless one of the proviso’s effectively excludes the proceeds.
The policy taken out by the daughter:
We suspect that you are of the view that proviso (iA) applies here. We repeat it for ease of reference:
… if … the Commissioner is satisfied that the policy was taken out or acquired by a person who on the date of death of the deceased was a partner of the deceased, or held any share or like interest in a company in which the deceased on that date held any share or like interest, for the purpose of enabling that person to acquire the whole or part of-
(aa) the deceased's interest in the partnership concerned; or
(bb) the deceased's share or like interest in that company and any claim by the deceased against that company,
and that no premium on the policy was paid or borne by the deceased; …
You will notice that the mere fact that they were members of the close corporation at date of death is not sufficient for this exclusion to apply. The purpose of this policy, referred to as a buy and sell agreement, must be to enable the surviving member to acquire the deceased interest – from the facts provided, this may not be the case.
The fact that the policy was paid directly to the company (CC) requires comment. This may, in the first instance also confirm that proviso (1A) doesn’t apply.
Proviso (ii) will apply if … the Commissioner is satisfied and remains satisfied … that no amount due or recoverable under such policy has been or will be paid into the estate of the deceased and that no such amount has been or will be paid to, … any company which was at any time a family company in relation to the deceased; … See the definition of family company in section 1 of the Act.
The cession of the policy by the mother may also not qualify under this proviso, but you may need more detail here. But we believe that you may be right with respect to the second policy.
We are not sure why you are of the view that the third policy must be excluded - the amount due under such policy is NOT recoverable by the … the deceased under a duly registered ante-nuptial or post-nuptial contract.