Incidents of ownership is a term that typically denotes exclusive possession or custody of certain rights or privileges. This term is most commonly used in the context of life insurance policies and real estate transactions. For instance, the owner of a mortgaged property is legally entitled to the rental payments arising out of it. This is one of the most common forms of an incident of ownership. It is important to note that in the event of any breaches or violations of mortgage conditions on part of the mortgagor, the incidents of ownership with respect to that property would be obtained by the mortgagee.
On the other hand, when it comes to life insurance policies, an incident of ownership would include a tax consideration for the beneficiaries of the insurance policy.
When we talk about incidents of ownership, it is vital to comprehend its affiliation with the insurance industry. Now, it is already established that the above term finds its application in life insurance policies. This essentially means that a person may be said to have incidents of ownership if they effectively retain certain rights with respect to a life insurance policy. These rights would include the right to change the beneficiaries of such a policy, the power to borrow from the cash value, and the right to surrender, modify, or cancel the policy, among other rights.
It should be noted that the issue of incidents of ownership typically arises in terms of tax liabilities in situations where one person gifts a life insurance policy to another.
In terms of real estate, “incidents of ownership” is a term that denotes control or exclusive authority over a particular piece of property. For instance, if an individual happens to give away a piece of real estate while retaining incidents of ownership over that property, it essentially means that they possess the right to collect rent from the use of that property. The central objective behind the employment of this form of ownership is the reduction in tax liabilities that result from it.
When it comes to real estate transactions, the concept of incidents of ownership proves appealing to most property owners. The reason behind this is that by maintaining incidents of ownership over a property, the owner can retain certain rights over it even after giving it away. On a comprehensive note, such a transfer of property does not carry weight as a legal gift, thus allowing the owner to evade gift taxes altogether.
