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$500,000 is includible in Brad’s gross estate (Code Sec. 2035(d)(2)). b. A veto power over an incident of ownership is in itself an incident. Therefore, the entire policy amount is includible under Code Sec. 2040. c. The three-year rule applies and the proceeds are includible (Code Sec. 2035(d)(2)).a. Nothing is includible in H’s estate, but the adjusted taxable gifts would be added to the estate tax base. 65. (Policy and premiums.) b. Nothing would be included in H’s estate and the only adjusted taxable gift would be the policy itself. c. The proceeds would be included in H’s estate under Code Sec. 2025 (d)(2) since the transfer was made within three years of H’s death. The premiums would merge into the policy and not be separately included. d. If the policy was a preexisting one, the proceeds includible in H’s estate would be the same portion of total proceeds as H’s premium payments were in relation to total premiums paid. Thus, if H had paid 71 percent of the total premiums, 71 percent of the proceeds would be includible. This analysis breaks down, however, if the policy was purchased and transferred within the three-year period prior to H’s death andD paid all the premiums. Presumably the proceeds would be includible in H’s estate, but with a reduction for premiums paid by D. e. The value of the policy on W’s life, i.e., the “interpolated terminal reserve” (replacement cost), would be includible in H’s estate.