What does the Bring-Back Rule dictate regarding life insurance policies?

The Bring-Back Rule pertains to how life insurance policies are treated in the context of estate planning and inheritance. According to this rule, if a policyholder passes away, any life insurance policies that the decedent owned must be returned to the decedent's estate if they were transferred to another individual within the three years prior to their death.

This means that if a policy was given away or transferred, it is effectively "brought back" into the estate for estate tax purposes, allowing the IRS to value and assess it as part of the overall estate. This is particularly important for tax implications, as it can affect the total value of the estate and, consequently, any estate taxes due.

The nature of the other options helps to clarify why they do not fit the definition of the Bring-Back Rule. Donating a policy to charity or automatically renewing it does not relate to the estate recovery process. Meanwhile, the transfer of policies without valuation directly conflicts with the intended estate planning controls the Bring-Back Rule provides, which ensures that such assets are accounted for within a limited timeframe after the policyholder's death.