Life insurance plays a significant role in estate planning, and we frequently examine the ways that it is used by those who are looking ahead toward the future. In this post we will take a look at some of the questions that people who are the beneficiaries of life insurance policies often pose.
I am aware of the fact that I will be receiving a significant influx of money when my mother dies because she has made me the beneficiary of a large insurance policy.
Does this mean that I will have to fork over a large percentage of that to the IRS when I file my income tax return?
Fortunately this won’t be the case. Generally speaking, insurance policy proceeds are not considered to be taxable income.
My friend had to wait a long time for his inheritance because the estate was held up in probate. Will probate stand between me and my life insurance policy proceeds?
Once again, the answer is no. Life insurance proceeds are paid out to the beneficiaries outside of probate.
Are insurance policy proceeds counted as part of your taxable estate?
The answer to this question is yes. However, if you hold insurance policies on your life you could gain tax efficiency by transferring them into an irrevocable life insurance trust. When you do this you remove them from your estate, and as a result they don’t count when the IRS is tallying your assets.
Distributions from the trust would be made to the beneficiaries by the trustee after your passing.
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- The SECURE Act and What It Means for You - February 10, 2020