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Is life insurance ever considered taxable for Pa Inheritance Tax purposes?

Harrisburg, PA |

I was named a remainder beneficiary in a Will of a resident of Pennsylvania. After reviewing the Pa Inheritance Tax Return it appears that Pa Inheritance tax was paid on a life insurance policy (the Estate was the beneficiary of the policy). The attorney representing the estate has a many years of experience so I can't imagine that this was simply an error. Is there any reason that Inheritance Tax would be paid on the proceeds of a Life Insurance Policy in Pa?

Attorney Answers 2

Posted

I believe that the proceeds are not taxable so long as the death was after 1982, even though you say they were payable to the estate.

See Pa. Code.:
§ 93.131. Payments from employment benefit plans and life insurance contracts.

(a) Scope and application. The purpose of this section is to establish rules relating to the circumstances under which payments received from employment benefit plans and life insurance contracts are subject to the inheritance and estate tax.

(b) Definitions. The following words and terms, when used in this section, have the following meanings, unless the context clearly indicates otherwise:

Employment benefit plans—Payments under pension, stock bonus, profit-sharing and other retirement plans including, but not limited to, H. R. 10 plans, individual retirement accounts, individual retirement annuities and individual retirement bonds.

Life insurance contracts—A contract possessing features of risk shifting and risk distribution, between the holder of a policy and an insurance company under which the company agrees, in return for the payment of premiums, to pay a specified sum to the designated beneficiaries upon the death of the insured. For purposes of this section, a life insurance contract does not include a matured endowment policy or a policy where the decedent’s only rights, at the time of his death, were to receive a refund under the policy.

(c) Life insurance contract.

(1) For the estate of a decedent dying prior to December 13, 1982. Payments received from a life insurance contract are exempt from the inheritance tax, unless the payments are made to the estate of the decedent. Payments made to the estate of the decedent from a life insurance contract are subject to the tax.

(2) For the estate of a decedent dying on December 13, 1982 and thereafter. Payments received from a life insurance contract are exempt from the inheritance tax whether they are paid to the estate or some other beneficiary.

This is not legal advice nor intended to create an attorney-client relationship. The information provided here is informational in nature only. This attorney may not be licensed in the jurisdiction which you have a question about so the answer could be only general in nature. Visit Steve Zelinger's website: http://www.stevenzelinger.com/

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Posted

Great advice from Attorney Zelinger.

DISCLAIMER: David J. McCormick is licensed to practice law in the State of Wisconsin and this answer is being provided for informational purposes only because the laws of your jurisdiction may differ. This answer based on general legal principles and is not intended for the purpose of providing specific legal advice or opinions. Under no circumstances does this answer constitute the establishment of an attorney-client relationship.

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