Tax on an indirect inheritance?

Question

I was wondering If I am held accountable for the income brought about by my mothers life insurance policy inheritance. I know normally it shouldnt be as it is below the 2M mark. The caveat is that when the policy was written I was under 18 yrs old and my uncle was listed as the beneficiary. He then gave me the money which was above the 12K gifting limit. Who is responsible for for the tax?

Just to clarify, my uncle is still alive. He just passed the money to me once he recieved payment from the insurance company.

Answer 1

Actually, the gift tax exclusion is $12k per year now so you are clear. However, for an example (using the old numbers) see below.

If your uncle is married, then both your uncle and your aunt can gift you $10k per year without gift tax issues. Or, if you are married, he can gift you $10k and your wife the $2k with the same outcome.

Also, the gift is not taxable in the way you are thinking. Without either of the 2 scenarios I mentioned above, the gift that is over the $10k annual limit ($2k in this case) would simply be deducted from your uncle's Estate Tax Exemption so that when he dies, if the exemption is, say $1M, then his exemption would actually be $998,000. That's all. It is not taxable to you or him on an income tax return.

I worked at a bank in Estate and Trust Taxes for 4 years.

Answer 2

The inheritance is pulled into your Uncle's estate. Ultimately your Uncle's heirs may recognize taxes on their inheritances because you have used up some of the gifting threshold. This portion of the inheritance should be disclaimed by your Uncle in probate. I highly recommend that you seek an attorney immediately to get this disclaimer in front of a judge.

Answer 3

You need to set down and consult with an attorney. Your uncle may have been used as a conduit. Life insurance procedes generally are not taxable so you raise more questions than I can fathom at this time.

Answer 4

the policy should hve had youas to benificery and your uncle as the custodian. When you reached the age of 21 the policy should have been cahnged. Since you got the cash if there is any tax you should pay Just an opinion. Unless you want to screw your uncle!