Twenty college fraternity brothers each placed $2,500 in a mutual fund account.

Question

Twenty college fraternity brothers each placed $2,500 in a mutual fund account. They agreed that upon the death of a fraternity brother, his beneficiary would receive $20,000 that was to be paid from the mutual fund account. The beneficiary of the last remaining fraternity brother would receive the balance remaining in the account. The mutual fund did very well. Earl was the last to die, at age 92, and his beneficiary received $250,000.
Is the $250,000 excluded from gross income? and do The proceeds not qualify as a gift, since the fraternity brothers paid $2,500 each per year to receive a future benefit (payment at death)?

Explanation / Answer

The $250,000 is not a gift because the brothers paid to receive a benefit, which Earl directed to be paid to his beneficiary. As to the beneficiary, the payment appears to be an inheritance. However, the payment was not an inheritance of Earl

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