After he died, the deceased made his brother beneficiary of his life insurance. Plain and simple. No will or documents, those still being investigated. What are tax consequences?? If the beneficiary forms a trust and pays some money to deceased's ex-wife in monthly installments during her life. The rest he wants to give it to charities.
Estate Planning Attorney
With life insurance, the beneficiaries are not taxed, but the deceased may be exposed to estate tax depending on the size of his assets; if he is married and other factors.
The face value of the life insurance policy -- say it was $1 million dollars -- is considered an asset of the estate and added to it if it is not in a special trust called an ILIT. Currently the estate tax exemption amount is $5.25 million. So if the deceased estate is less, then estate tax ishould not be an issue. But there may be income and inheritance taxes deending on our your local jurisdiction.
I recommend speaking with an attorney or an experienced financial planner in your area.
Tax treatment of the insurance proceeds while in trust and the tax treatment of the distributions to the widow all depend on the type of trust the insurance proceeds are placed.
Tax treatment would vary depending upon whether the trust was set up as a revocable trust, an irrevocable non-grantor trust, or an irrevocable grantor trust.
Furthermore, given the Brother's desire to provide an income stream to the widow and then upon her death provide the remainder to charity, a trust technique that probably should be looked at further is the "Charitable Remainder Trust" (CRT).
Charitable remainder trusts come in two main "flavors", Charitable Remainder Unitrusts (CRUTs) and Charitable Remainder Annuity Trusts (CRATs) - there are a variety of different CRUTs and CRATs as well.
The Brother should contact an estate planner experienced with CRTs and charitable giving as the CRT would most likely satisfy his charitable and non-charitable desires while doing so in the most tax efficient manner.
In sum: The tax consequences all depend on exactly how the proceeds are handled. Depending upon how the assets are held and distributed, the income tax, gift tax, and estate tax implications would all be different.
Disclaimer: This answer is provided for informational purposes only, does not constitute legal advice, and does not create an attorney-client relationship. Actual legal advice can only be provided after completing a comprehensive consultation in which all of the relevant facts are discussed and reviewed.
My colleagues make great comments but the facts are incomplete to give a complete answer. In other words are you sure the brother was not made trustee of a trust that owned the life insurance that was created by decedent to pay her for life and then to charities? Or possibly if my first question is incorrect....did the brother file a legal disclaimer to transfer back assets to a spouse where a decedent who died intestate would have assets go to a spouse?
My answer is not intended to be giving legal advice and this topic can be a complex area where the advice of a licensed attorney in your State should be obtained.
1 lawyer agrees