Generally, life insurance death benefits are included in the assets of the policy owner, regardless of who pays the insurance premium or who the designated beneficiary is. The change in ownership of a life insurance policy is a complex issue. Life insurance inheritances go directly to the beneficiaries listed in the policies. In general, they do not become part of the decedent's estate, so the headache of legalizing inheritance should be avoided.
However, beneficiaries of life insurance income are generally not responsible for paying estate tax, unless the last will and the decedent's will contain specific provisions requiring them to contribute part of the proceeds of the death benefit to meet the burden. tributary. A bad decision that investors often seem to make is to name the person who pays my wealth as the beneficiary of a contractual agreement, such as an individual retirement account (IRS), an annuity, or a life insurance policy. You don't have to pay income taxes on the initial income of the policy when you are the beneficiary of a life insurance policy.
Unless paid to your own estate, death benefits payable under your life insurance policies are NOT property assets, which means they don't conform to your will and sometimes means that they end up with the “wrong” people. However, inheriting life insurance can bring tax and other consequences, and sometimes it happens that the company refuses to pay anything. The main regulation that oversees proper property is known in the financial world as the three-year rule, which states that any gift of life insurance policies made within three years of death is still subject to federal wealth tax. The IRS has developed rules that help determine who owns a life insurance policy when an insured person dies.
With a valid life insurance policy, you can be sure that something will be passed on to your loved ones to help them survive in your absence. Some policies name more than one person to receive the proceeds of the death benefit when the insured dies. Without a beneficiary who survives you, life insurance funds will be equity assets, just like a bank account you own. If you want to create a new life insurance policy or make adjustments to the one you already have, contact Insurance Specialists, Inc.
Ultimately, however, the insurance company's payment policy and local laws based on the location of the estate influence the destination of the insurance money. Some states that do have inheritance taxes, such as New Jersey, specifically exempt life insurance income from taxes. If you want your life insurance income to avoid federal taxes, you'll need to transfer ownership of your policy to another person or entity. The only exception is when the insurance policy is paid to “your estate” or when, under many policies, the only named beneficiary dies before you.
When a person buys a life insurance policy, they basically sign a contract with an insurance company.
