Co-Founder, TermInsuranceBrokers.com, Goldenzweig Financial Group, Las Vegas, Nevada
The proceeds from the policy are income-tax free. If you name your spouse the beneficiary to the policy, the monies would not be included in the calculation of the estate. If the beneficiary is someone else, it would be included in the calculation of the estate for tax purposes.
When the insured is also the policyowner, the life insurance proceeds can become part of the estate in the event all named beneficiaries on the policy, if any, predecease the insured (and assuming it's never updated to reflect a new named party).
A trust, such as an irrevocable life insurance trust (ILIT), can allow the proceeds to be excluded from the taxable estate because you would no longer be the owner of the policy. The trust would be the owner and controls how the proceeds are distributed.
When the owner of a life insurance policy names the estate, or the executor of his estate of his estate, as the beneficiary, the proceeds from the life insurance will be part of his estate when the insured person dies. This is also true if he transferred ownership from the estate, or executor of the estate, to someone else, within three years before the policy paid out.
If the surviving spouse is the beneficiary or a policy owned by the insured spouse who died, the funds are not a part of the estate. If there is no surviving spouse, the life insurance proceeds are a part of the estate.
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When the insured is also the policyowner, the life insurance proceeds can become part of the estate in the event all named beneficiaries on the policy, if any, predecease the insured (and assuming it's never updated to reflect a new named party).
A trust, such as an irrevocable life insurance trust (ILIT), can allow the proceeds to be excluded from the taxable estate because you would no longer be the owner of the policy. The trust would be the owner and controls how the proceeds are distributed.
If the surviving spouse is the beneficiary or a policy owned by the insured spouse who died, the funds are not a part of the estate. If there is no surviving spouse, the life insurance proceeds are a part of the estate.