In regards to life ins.policy ownership, which way is best for the taxes when funds are dispersed?

Question

I've been told that ownership to benefactor brought in Inheritance Tax. That the benefactor should own the policy to eliminate the higher taxes on the funds.

Answer 1

mbr is usually right on target, but this time she is wrong. Life insurance is not subject to federal income tax if paid to a named beneficiary. However, it may be includable in the estate for estate tax puposes if the insured is the the owner and premium payor. This is generally not an issue with most folks because of the high estate tax exclusion. Most high estate owners contact professional financial planners for advice on how to structure the life insurance for the best tax breaks. Hope this helps.

Answer 2

If the beneficiary owns the policy the death proceeds would not be part of your estate and would not be subject to inheritance or estate taxes at your death.
If the policy is owned by an irrevocable trust with the trust named to owner and beneficiary you would avoid estate and inheritance taxes on the proceeds at your death and at the beneficiaries death and the amount left at your wife's death could go to your children without ever being part of either your estate or your spouses estate.
See a good estate planner if you want to pursue this matter.

Answer 3

who the HECK told you that?

Normally, if the beneficiary is NOT the deceased, then there is no tax. If the ESTATE is the beneficiary, it becomes subject to estate taxes.

Of course, this is in the US, and as this is a worldwide board, whereever you live might have different laws.

I'd check with a licensed agent, AND a licensed tax accountant, to get the facts straight for your locale.

Answer 4

I'm with "Deep" on this one. The only exception that I'm aware of is if the owner/beneficiary was made so in order to make the proceeds "valuable consideration," then a portion of the proceeds ARE taxable:

http://www.irs.gov/faqs/faq4-9.html

I thought I'd mention this because you don't mention why you were told the proceeds are taxable.