TAX TREATMENT OF LIFE INSURANCE PREMIUMS:
|Resume | Daily Commentary| Contact Us | Site Search | Home Page |
| Deductible | Income to Employer/ Insured/Owner |
| Group Term Life | yes | over $50,000 |
| Key Person | no | no |
| Buy/Sell | no | no |
| Stock Redemption | no | no |
| Section 162 Bonus | yes | yes |
| Split Dollar | no | possibly |
| Qualified Retirement | yes | possibly |
| Divorce Settlement | possibly | possibly |
| Other personal use | no | no |
INSURANCE AND ESTATE TAX: This is addressed frequently in others areas of insurance and estate planing herein, but I thought I'd make the point again. If you own insurance IT ALMOST ALWAYS WILL BE TAXED IN YOUR ESTATE EVEN THOUGH THE INSURANCE WENT TO YOUR DESIGNATED BENEFICIARY.
Actually, that's the answer to the insurance quiz. If you have an incident of ownership in the policy (you can change beneficiaries, etc.), then the amount will be INCLUDED in your taxable estate. For example, you have other net assets totaling $500,000 at death. You also have a $250,000 policy to be paid to your daughter (different scenario with spouses- check further with competent sources). Will your daughter get the whole $250,000? Not really because this is what happens. The estate for federal tax purposes will be the $500,000 PLUS the $250,000 of insurance payments for a total of $750,000. Federal estate tax would be $55,500. Therefore the inclusion of the life insurance will require the estate to pay the IRS a tax that must be available within nine months of the date of death.
You should carefully review all of your estate planning with proper counsel to recognize this and other problems with insurance. However, as a continuing education instructor to all types of agents and planners for many years, I would NOT suggest you do the review with a standard agent unless they had specific and extensive education in this area. The minimum standard is the HP12C but you even need more than that to do this correctly.
I therefore suggest an ESTATE PLANNING attorney that has additional designations or affiliations. You (or your beneficiaries) can't afford a $55,500 mistake.