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 Posted: Tue Dec 15, 2009 10:02 am Post subject: Taxes for beneficiaries on life insurance proceeds |
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Should my beneficiaries pay taxes on my life insurance policy proceeds?
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Plasticmind
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| Posted: Tue Dec 15, 2009 12:16 pm Post subject: |
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no
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Lori
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| Posted: Thu Dec 17, 2009 6:51 am Post subject: |
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| The policy proceeds that your beneficiary receives (upon your death) would only be considered as his 'taxable income' if you'd have transferred your policy ownership to someone else prior to your death. This is common with people who'd transfer policy ownerships for money or money's worth. Roddick |
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roddick
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| Posted: Thu Dec 17, 2009 2:55 pm Post subject: |
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| If the policy has been sold to receive cash through a life settlement or viatical, the company that now owns ownership will make itself the beneficiary, so the insured's original beneficiaries are out of the loop. |
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BNTRS
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| Posted: Thu Dec 17, 2009 2:58 pm Post subject: |
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| Also there are other reasons the benenfit might be taxable. A Goodman triangle (different, owner, beneficiary, and insured) would create a taxable death benefit. |
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BNTRS
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| Posted: Fri Dec 18, 2009 7:36 am Post subject: |
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| Ownership incidents may show your policy proceeds through the federal estate taxes. Incidents of ownership indicate any form of control that you may have towards your policy e.g. taking a loan against it, canceling, surrendering etc. In case you've chosen your spouse as the beneficiary, the federal taxes may be postponed till your spouse is alive. |
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steven
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| Posted: Fri Dec 18, 2009 11:48 am Post subject: |
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Also keep in mind while the benefit is usually income tax free, interest earned on the money is not.
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sdkra
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| Posted: Sat Dec 19, 2009 5:39 am Post subject: |
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I think it's best to get my policy proceeds directed towards a certain beneficiary. In doing so, the policy gets conveyed to them fast and has got nothing to do with the estate. Thus the income estate or transfer taxes are not applicable on the policy proceeds.
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anonymous00
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| Posted: Sat Dec 19, 2009 12:15 pm Post subject: |
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Anonymous00, if the owner is the insured, it is still part of their taxable estate.
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sdkra
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| Posted: Thu Dec 24, 2009 7:28 am Post subject: |
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Payments made to a life insurance beneficiary won't be counted within his gross income if the policy transfer was not for value. Only exclusions to this would be lump sum payments made upon the death of the insured and any following payment that's made till the extent of payment made upon the death of the insured.
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Juanita
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| Posted: Thu Dec 24, 2009 11:46 pm Post subject: |
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| Quote: | | I think it's best to get my policy proceeds directed towards a certain beneficiary. In doing so, the policy gets conveyed to them fast and has got nothing to do with the estate. Thus the income estate or transfer taxes are not applicable on the policy proceeds. |
This is incorrect. Any life insurance proceeds are counted towards the deceased's gross estate. There are ways to avoid this, but that conversation goes beyond the scope of this thread. |
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BNTRS
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| Posted: Sat Jan 02, 2010 2:22 am Post subject: |
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The value of policy proceeds inures to the estate of the owner. A surviving owner might have the ability to "dispose" of the value before his own death.
In most instances, however, the owner is the insured, and has no such ability after death. Hence the value of making a trust the owner far enough in advance, and not simply the beneficiary.
The trust has a lifetime of up to 99 years. If it "dies" penniless at/before that point, because it has fully distributed its assets to its beneficiaries by then, there is nothing left in the way of an estate to tax.
Three cheers for the ILITs and Crummeys! (and similar alternatives)
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MaxHerr
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