Three-Year Rule

DEFINITION of 'Three-Year Rule'

Section 2035 of the tax code, which stipulates that assets that have been gifted through an ownership transfer, or assets for which the original owner has relinquished power, are to be included in the gross value of the original owner's estate if the transfer took place within three years of his or her death. If gifted assets do not meet the necessary requirements, the value of the assets is added to the value of the estate at the time of the original owner's death, increasing its value and the estate taxes imposed on it.

BREAKING DOWN 'Three-Year Rule'

This rule prevents individuals from gifting assets to their descendants or other parties once death is imminent in an attempt to avoid estate taxes. The rule does not include all assets gifted or transferred in that three-year period and is mainly focused on insurance policies or assets in which the deceased retains an interest.

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RELATED FAQS
  1. If a parent transferred a house deed to their three adult children, do they need ...

    Currently, only the parents Read Answer >>
  2. How does the gifting process work with a deed transfer?

    My parents own a home that they would like to "gift" to my husband and me. The house is in my parents name and they want ... Read Answer >>
  3. Can I give stock as a gift?

    Stocks, bonds or any other securities can be transferred as gifts. Giving the gift of stock also has benefits for the giver. ... Read Answer >>
  4. How can my husband inherit a house deed?

    My mother in law wants to know the best way to leave the deed to her house to her son (my husband). Should it be left in ... Read Answer >>
  5. How do taxable life insurance benefits work?

    I read online that if the owner, the insured, and the beneficiary are three different people, the death benefit from life ... Read Answer >>
  6. If my son transfers stock to me, I understand that the basis is the stock price upon ...

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