The state of Washington does not charge income tax on life insurance benefits left to a person as beneficiary. If the benefit is left to the estate, or no beneficiary is alive, the money will be taxed.
Life insurance proceeds are considered part of the estate, and state and federal estate taxes apply to the excess above the amount of the estate that is exempted from estate taxes. In 2013, the amount of the estate exempt from federal estate taxes is $5,250,000.
Owner, Mosaic Insurance Alliance LLC, 2122 164th St SW Ste 301, Lynnwood WA 98087
Generally, the answer is no. That's one of the best benefits of life insurance…the death benefit is tax-free. Make sure the beneficiary is something different than the estate of the policy holder. That's when the state can come in and get their hands on your money from a tax perspective.
Consulting with a licensed life advisor on the day you bought the policy was important…but not as important to an ongoing consultative relationship with an agent when you need them the most.
Agent Owner, Gilmore Insurance Services, Marysville, Washington State
Does Washington state tax life insurance benefits? Short answer "yes" in some situations. Washington state does have their own version of estate taxes, just like the federal government does. The threshold is much lower than the Federal level and the highest bracket is much lower than the Federal standard. To reduce or minimize the impact of ownership of a life policy if someone is in that higher asset bracket, a life insurance trust should be considered to help in this area.
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Life insurance proceeds are considered part of the estate, and state and federal estate taxes apply to the excess above the amount of the estate that is exempted from estate taxes. In 2013, the amount of the estate exempt from federal estate taxes is $5,250,000.
Consulting with a licensed life advisor on the day you bought the policy was important…but not as important to an ongoing consultative relationship with an agent when you need them the most.