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Subject Author Date
tax on life insurance My interest 01-03-2007
Posted by William Brenner on January 6, 2007, 12:21 am
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 Shyster1040 wrote:

> If the decedent insured held any of the incidents of
> ownership in the life insurance policy, then the proceeds
> payable on the decedent's death are included in the
> decedent's estate for federal estate tax purposes.
>
> Thus, if the person who is the insured under the policy
> (i.e., the person whose death will trigger payment of the
> death benefit) has no ownership interest in, or control
> over, the policy, the death benefit is not included in the
> insured's estate upon death.

As a corollary to that, is it true that life insurance
proceeds paid to a policy owner/beneficiary is treated as
taxable income?

An example would be parental ownership of a policy on a
child, with the parent(s) as beneficiary.

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Posted by Stuart A. Bronstein on January 7, 2007, 11:30 pm
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> Shyster1040 wrote:

>> If the decedent insured held any of the incidents of
>> ownership in the life insurance policy, then the proceeds
>> payable on the decedent's death are included in the
>> decedent's estate for federal estate tax purposes.

> As a corollary to that, is it true that life insurance
> proceeds paid to a policy owner/beneficiary is treated as
> taxable income?
>
> An example would be parental ownership of a policy on a
> child, with the parent(s) as beneficiary.

Taxable for income tax purposes? Generally no. But if the
child took the policy out on himself and the parent paid to
become the owner, then the death benefit would be taxable.

Stu

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Rich Carreiro on January 7, 2007, 11:30 pm
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> As a corollary to that, is it true that life insurance
> proceeds paid to a policy owner/beneficiary is treated as
> taxable income?

No, it's not.

--
Rich Carreiro rlcarr@animato.arlington.ma.us

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by My interest on January 6, 2007, 12:21 am
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Shyster1040 wrote:

> If the decedent insured held any of the incidents of
> ownership in the life insurance policy, then the proceeds
> payable on the decedent's death are included in the
> decedent's estate for federal estate tax purposes.
>
> Thus, if the person who is the insured under the policy
> (i.e., the person whose death will trigger payment of the
> death benefit) has no ownership interest in, or control
> over, the policy, the death benefit is not included in the
> insured's estate upon death.

Assuming the insured person has no interested in the death
benefit (why a dead person want to have any interest in his
life policy?), so what you are saying is the death benefit
is not included in the decend's estate, i.e. it has no
implication on the inheritance perspective. Is it correct?

Then I assume the beneficiary will have to pay some kind of
income tax? Is it correct?

--
Moderator:
The general rule in the United States is "the beneficiary
does not pay income taxes on life insurance proceeds."

The only issue is whether or not the insurance proceeds are
included in the decedent's estate for federal estate tax
purposes. So unless the decedent was very wealthy, this
issue is unlikely to arise.

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by L K Williams on January 6, 2007, 5:45 am
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> Shyster1040 wrote:

>> If the decedent insured held any of the incidents of
>> ownership in the life insurance policy, then the proceeds
>> payable on the decedent's death are included in the
>> decedent's estate for federal estate tax purposes.
>>
>> Thus, if the person who is the insured under the policy
>> (i.e., the person whose death will trigger payment of the
>> death benefit) has no ownership interest in, or control
>> over, the policy, the death benefit is not included in the
>> insured's estate upon death.

> Assuming the insured person has no interested in the death
> benefit (why a dead person want to have any interest in his
> life policy?), so what you are saying is the death benefit
> is not included in the decend's estate, i.e. it has no
> implication on the inheritance perspective. Is it correct?
>
> Then I assume the beneficiary will have to pay some kind of
> income tax? Is it correct?

No and no.

The beneficiary does not receive any taxable income from life
insurance on another person.

Insurance proceeds are included in the taxable estate of the
policy holder if the holder retained any of the "incidents
of ownership." There are several factors that can be
incidents of ownership but I don't have a list at hand. The
most commen incident of ownership, however, is the right to
designate or change the beneficiary. It does not matter that
the deceased doesn't receive the policy proceeds.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

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