When a Trust is listed as the sole beneficiary of a life insurance payout, what are the tax implications if the money sits?

Asked about 1 year ago - Dundee, IL

The primary funding for a Special Needs Trust is a term life insurance policy worth $150,000. The Trust is the sole beneficiary. Will the money avoid the high Trust taxation and be allow to sit in the trust because it came from a life insurance policy? Also, will the money still be tax free when it is distributed from the trust to the beneficiaries?

Attorney answers (3)

  1. Jeffrey R. Gottlieb

    Contributor Level 13

    7

    Lawyers agree

    Best Answer
    chosen by asker

    Answered . What taxes are you worried about? Life insurance payout is not taxable income. Only interest after death is income. Talk to a tax accountant or tax attorney for specific advise based on the terms of the trust and future distributions.

    The comments above are not legal advice and do not create an attorney-client relationship: you haven't hired me or... more
  2. Christian K. Lassen II

    Pro

    Contributor Level 20

    6

    Lawyers agree

    Answered . This is a question for your accountant.

  3. James D. Wade

    Contributor Level 12

    5

    Lawyers agree

    Answered . I agree with my colleague, you should speak with a tax attorney or accountant. They will need to see the trust documents so that they can discuss the tax consequences of the life insurance proceeds now and in the future.

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