I will be receiving life insurance benefits shortly. I am hoping someone can shed some light on my options for distributing it to family with regards to the tax implications, as well as taxes on what I will receive. Thanks in advance.
Proceeds of a life insurance policy, paid to a beneficiary by reason of the death of the insured, are not subject to income tax (subject to some exceptions relating to employer-provided coverages).
If I understand you correctly, you are the beneficiary of a life insurance policy and are planning to give some of the proceeds of this policy to various members of your family who were not beneficiaries. Watch out for gift taxes. Distributing the life insurance proceeds to family members may result in gift tax liabilities if you give more than $10,000 a year to any one recipient. Also, please consider whether the people receiving the money from you can handle it sensibly.Chips
Thank you for responding. Yes, you have the situation correct. I was wondering if you had any ideas on shelters that would allow me to gift more than $10k to family members/year (i.e.-education costs, etc...). Also, would the tax rate on gifts above $10k be taxed at the persons marginal tax rate? Thanks again!
<<Thank you for responding. Yes, you have the situation correct. I was wondering if you had any ideas on shelters that would allow me to gift more than $10k to family members/year (i.e.-education costs, etc...). Also, would the tax rate on gifts above $10k be taxed at the persons marginal tax rate?>>If you are paying education costs DIRECTLY to the education institution, then you can avoid the $10k annual limitation. You may also increase your gifts by "splitting" them with your spouse. I have a number of different articles in the Taxes FAQ area regarding gifting, gift taxes, etc. You might want to check 'em out. With respect to the gift "tax", it will likely not be a tax that you have to pay immediately. Instead you'll use up part of your "unified" estate tax credit. Again, this is explained in the Taxes fAQ area. In addition, we discuss this issue in much more detail in The Motley Fool Investment Tax Guide 2000. Might be something that you want to buy and read.TMF TaxesRoy
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