Usually no, life insurance proceeds paid to a beneficiary are not taxable.
There are certain circumstances that could make the proceeds taxable but these are generally rare incidences. If the proceeds are taxable the life insurer will provide you with proper notice to let you know that payment of the proceeds is a taxable event.
Inherited life insurance is not taxable for income tax, in most situations.
However, if the amount of the life insurance proceeds caused the estate to exceed the limit for exemption from state or federal estate taxes, the estate taxes will need to be paid by someone. Sometimes the policyholder will express in his/her will if the beneficiary is to help contribute to the payment of estate taxes. If there is no will, the laws of the state in which you reside will determine if you have to contribute to the estate tax payment.
President, The Firm of Steven H. Kobrin, LUTCF, 6-05 Saddle River Rd #103, Fair Lawn, NJ 07410
Typically, no. Then again, it depends on who was the owner of the policy, and a few other factors. You also need to be concerned about state estate taxes as well as federal estate taxes.
A question like this should be brought to the attention of an attorney. And not just any attorney – one who specializes in estate planning.
If structured correctly, life insurance can be a wonderful way to transfer wealth to the next generation. It could also be a great way to make charitable gifts. All without paying estate taxes.
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There are certain circumstances that could make the proceeds taxable but these are generally rare incidences. If the proceeds are taxable the life insurer will provide you with proper notice to let you know that payment of the proceeds is a taxable event.
However, if the amount of the life insurance proceeds caused the estate to exceed the limit for exemption from state or federal estate taxes, the estate taxes will need to be paid by someone. Sometimes the policyholder will express in his/her will if the beneficiary is to help contribute to the payment of estate taxes. If there is no will, the laws of the state in which you reside will determine if you have to contribute to the estate tax payment.
A question like this should be brought to the attention of an attorney. And not just any attorney – one who specializes in estate planning.
If structured correctly, life insurance can be a wonderful way to transfer wealth to the next generation. It could also be a great way to make charitable gifts. All without paying estate taxes.