Are taxes paid on life insurance left to beneficiary's?

Asked almost 4 years ago - Holland, MA

If your parent's leave money to you as a beneficiary - do you pay any kind of taxes on it? Gift or income? What if some of the money then is distributed to other siblings?

Attorney answers (4)

  1. Christopher W. Vaughn-Martel

    Contributor Level 17

    1

    Lawyer agrees

    Answered . Without specific facts, I am unable to provide you with specific legal advice. However, as a starting point, the beneficiaries of a life insurance policy do not pay taxes on the death benefit left to them. However, the life insurance may be taxable to the estate of the deceased individual. If the money is then distributed to other siblings, you may be required to file a gift tax return. You should probably speak with an attorney. Any mistake will cost you many many more times what it would cost to avoid the mistake in the first place.

  2. John L Roberts

    Contributor Level 10

    1

    Lawyer agrees

    Answered . You posted your question in the Probate section. Are you and your family are involved with the distribution of proceeds of a life insurance policy that was owned by a deceased parent? If the deceased parent had a taxable estate, there would be estate tax issues to consider. You can find a chart listing the Massachusetts and Federal estate tax thresholds at:

    http://estateplansplus.com/html/tax_2010.html

    There is no income tax on life insurance proceeds, but if you decide to give away a substantial share of the life insurance proceeds, you would have to file a gift tax return.

    The threshold for gift tax reporting is $13,000.

    Consulting an estate planning and probate attorney would benefit you, and your family.

    John L. Roberts, Elder Law, Estate Planning, Probate and Disability Law
    Longmeadow, Massachusetts

  3. Charles Edward Mcwilliams Jr.

    Contributor Level 14

    1

    Lawyer agrees

    Answered . Since you appear to have several questions - all of which may involve different facts - I strongly encourage you to get with a CPA and/or tax attorney to discuss these matters. That said, generally no income taxes are due on amounts inherited from a parent, nor from insurance proceeds (though there are rare exceptions). If, on the other hand, you receive an inheritance and then pay a portion of it to siblings - whether out of the kindness of your heart or some feeling of family loyalty - you may have to report the gifts on Form 709 to the extent they exceed $13,000 per year, per person. In any event, I would suggest you get with your CPA (at a minimum) to discuss these tax implications in more detail.

    NOTE: If you find this response helpful, please click on the “thumbs up” button at the bottom.

    DISCLAIMER: THE INFORMATION PRESENTED HERE IS GENERAL IN NATURE AND IS NOT INTENDED, NOR SHOULD IT BE CONSTRUED, AS LEGAL ADVICE. THIS POSTING DOES NOT CREATE ANY ATTORNEY-CLIENT RELATIONSHIP BETWEEN US. FOR SPECIFIC ADVICE ABOUT YOUR PARTICULAR SITUATION, CONSULT A QUALIFIED ATTORNEY.

  4. Henry Daniel Lively

    Contributor Level 20

    Answered . If you are the beneficiary of a life insurance policy, you typically receive the proceeds free of income and estate tax. However, if the estate does not have sufficient funds to pay the estate taxes, then the beneficiaries of life insurance policies have secondary liability.

    Any individual seeking legal advice for their own situation should retain their own legal counsel as this response provides information that is general in nature and not specific to any person's unique situation. Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency.

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