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Old 09-06-2019, 12:28 PM
 
Location: Gilbert, AZ
3,262 posts, read 2,031,605 times
Reputation: 3460

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Quote:
Originally Posted by mathjak107 View Post
don't forget i can make my son the policy owner so it stays out of our estate . i can pay the premiums which i did , but he still gets it tax free .

I really need to educate myself on estate planning. Is there a good book or website you can recommend on the subject, or do the laws vary so much from state to state to make it not possible to generalize?
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Old 09-06-2019, 01:34 PM
 
73,297 posts, read 73,074,368 times
Reputation: 50886
Quote:
Originally Posted by hikernut View Post
I really need to educate myself on estate planning. Is there a good book or website you can recommend on the subject, or do the laws vary so much from state to state to make it not possible to generalize?
The states themselves play a big part in deciding a path .....as an example New York years ago had only a 1 million dollar exclusion ... we were going up a million a year every year going forward until we hit the federal level .....when we saw an estate attorney he blew me away because I had no idea if you were over the limit in any year by 5% you did not pay on the overage ...you paid the estate tax from dollar one ....

We were over by a few million back then ....so he had us use something called disclaimer trusts which if need be allow us to pass 2x the state limit ....but the beauty is these trusts donít activate unless the surviving spouse throws a switch up to 9 months after the death of the other ...

Then half the assets pass through an irrevocable trust and half normally.

So the best teacher is a great estate attorney
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Old 09-06-2019, 01:49 PM
 
3,398 posts, read 3,120,326 times
Reputation: 4955
Quote:
Originally Posted by fluffythewondercat View Post
The wisdom of the Web seems clear on this point: an inheritance (death benefit) from a life insurance policy is not taxable to the beneficiary or beneficiaries.

However, my SIL says that when she received her $106k death benefit from the policy, $24k was withheld for taxes.

I've never looked into insurance policy payouts since I'm no one's heir, so any idea why this might have been true? Thanks.

My father passed last October and we received the life insurance money with no taxes taken out. Per my tax advisor -Life insurance proceeds are not taxable Ė only the interest earned from the date of death until the policy is cashed is taxable.
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Old 09-06-2019, 02:42 PM
 
1,873 posts, read 837,350 times
Reputation: 3433
Quote:
Originally Posted by fluffythewondercat View Post
The wisdom of the Web seems clear on this point: an inheritance (death benefit) from a life insurance policy is not taxable to the beneficiary or beneficiaries.

However, my SIL says that when she received her $106k death benefit from the policy, $24k was withheld for taxes.

I've never looked into insurance policy payouts since I'm no one's heir, so any idea why this might have been true? Thanks.
Your husband and his sister need to ask the trustee. My guess is that the beneficiary of the policy was the estate or someone who passed away before her thus going to the estate. There could be other reasons but the trustee will know for sure. Unless it is taxes on interest (doubtful based on amount taken out) this will not affect your personal income tax. Your husband and sister should ask the trustee to go over it with them what the tax implications are for the estate and for them personally and why this tax was taken out.
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Old 09-06-2019, 03:27 PM
DKM
 
Location: Thousand Oaks, CA
3,025 posts, read 1,083,429 times
Reputation: 2963
There is life insurance and then there is "life insurance". The latter might be an investment vehicle with deferred income and that income is taxed to the recipient. That's what you got OP. Not much you can do about it as you will get a 1099-R with income on there.
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Old 09-06-2019, 03:35 PM
 
Location: Scottsdale, AZ
8,314 posts, read 5,089,994 times
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Quote:
Originally Posted by N.Cal View Post
My father passed last October and we received the life insurance money with no taxes taken out. Per my tax advisor -Life insurance proceeds are not taxable – only the interest earned from the date of death until the policy is cashed is taxable.
My MIL died three years ago today.

If the heirs had filed for their respective shares promptly, they wouldn't be liable for tax? I guess that's what you're saying. But $24k seems a lot to withhold for 3 years' interest.
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Old 09-06-2019, 03:40 PM
 
Location: Scottsdale, AZ
8,314 posts, read 5,089,994 times
Reputation: 30440
Quote:
Originally Posted by NorthofHere View Post
Your husband and his sister need to ask the trustee. My guess is that the beneficiary of the policy was the estate or someone who passed away before her thus going to the estate. There could be other reasons but the trustee will know for sure. Unless it is taxes on interest (doubtful based on amount taken out) this will not affect your personal income tax. Your husband and sister should ask the trustee to go over it with them what the tax implications are for the estate and for them personally and why this tax was taken out.
My spouse IS the successor trustee. That's how I know he and his sister were the beneficiaries. He has the documents in his office.

I think we're finally going to have to hire a financial advisor. My MIL never saw a financial instrument or bank that she didn't like and it's just too complicated for me to try to figure out tax strategies.
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Old 09-06-2019, 03:52 PM
 
Location: Haiku
4,764 posts, read 2,762,277 times
Reputation: 6984
Quote:
Originally Posted by fluffythewondercat View Post
My MIL died three years ago today.

If the heirs had filed for their respective shares promptly, they wouldn't be liable for tax? I guess that's what you're saying. But $24k seems a lot to withhold for 3 years' interest.
What is this interest? Is the IRS thinking the money was put in a bank account by the insurance company? If so, the interest earned on 106k for three years would be at most 6k, and the tax withheld on that would be maybe 1-2k. This doesn't make sense.

But if it is a mistake of some sort they will get the withholding back when they file their taxes. Either that or a 1099 will show up that should reveal what the income was that was taxed.
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Old 09-06-2019, 04:10 PM
DKM
 
Location: Thousand Oaks, CA
3,025 posts, read 1,083,429 times
Reputation: 2963
Quote:
Originally Posted by fluffythewondercat View Post
I think we're finally going to have to hire a financial advisor. My MIL never saw a financial instrument or bank that she didn't like and it's just too complicated for me to try to figure out tax strategies.
A financial advisor isn't going to help you with this situation. Based on what you shared so far:

She bought a variable annuity (maybe with a death benefit rider) and the difference between what she paid initially and what you are getting is income under IRC 691. This is free professional advice. You're welcome.
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Old 09-06-2019, 04:29 PM
 
Location: Rust'n in Tustin
2,442 posts, read 2,518,687 times
Reputation: 4676
Quote:
Originally Posted by fluffythewondercat View Post
.

I think we're finally going to have to hire a financial advisor...
Oh the humanity !!

You mean actually hire a professional in the field?
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