My brother died about 2 weeks ago, and a couple days ago we all began settling the death benefit and all of the paper work, and so on. He was a Marine, so that's why it was such a big amount. My brother assigned my mother to be the beneficiary if anything ever happened to him, and it did. I heard that sometimes, a check can be taxed over 40%, which is outrageous. In a few weeks, my mom will recieve the $400,000, at which she was planning on writing out a check of $397,000 ish to give to his now widdowed wife, keeping $3,000 to pay for a few extra funeral costs. By default, she was already given $100,000 simply for being his wife. When she gets her half a million, will she be losing 40% to taxes? That's a $200,000 loss, simply by taxes. That's enough to survive 7 years if your smart about it, and they cannot take that much away. She has a 2 month old baby now too. Is there a method of transfer that doesnt show up on income tax, or something? I hope you guys can help! Good luck!
-Andrew
2007-08-16 08:12:06 · 8 answers · asked by College guy 2 in Business & Finance ➔ Taxes ➔ United States
My mom was thinking of making it a "One Time Gift", or maybe even putting them into CDs, but we are concerned that those too, may be taxed. Would it be smart to maybe get it in bills and hand it over to her? There must be a way around it. My sister in law didn't get half a million dollars to lose 40% of it. I hope you guys have a good idea.
2007-08-16 08:14:38 · update #1
Insurance proceeds are not taxable, but if your brothers estate was large enough (2 million federally) his estate could owe estate taxes on all his assets, which insurance can be included in with. If the $400,000 is what he had, nothing should be taxable.
2007-08-16 09:16:03 · answer #1 · answered by Anonymous · 2⤊ 0⤋
You have several good explanations from tlc, PepsiLime and Bostonianinmo.
Bostonianinmo ... you write very good explanations that are understandable by the lay persons that often write here. But, your response above has a technical error. You state that life insurance is never subject to estate taxes unless the estate is the beneficiary. Life insurance in which the insured is the owner, rights holder or beneficiary is taxable in the estate of the insured.
2007-08-16 11:42:32 · answer #2 · answered by CPA/PFS 2 · 0⤊ 0⤋
My condolences on your loss.
The $400k is the proceeds from his SGLI -- Servicemen's Group Life Insurance. It's a term life insurance policy and term life insurance proceeds are never taxed OR included in the estate for tax purposes UNLESS the beneficiary is the estate. There's no ownership in a term policy -- unlike Whole Life or Universal Life -- so unless the insured names themselves or their estate as beneficiary it won't be included in the estate for Estate Tax purposes.
If he listed his mother as beneficiary on the policy then the money is not taxed to her. Legally his widow has no entitlement to the funds. If his mother gives the money to his widow, the legal status of that payment as far as tax law is concerned is that of a gift.
His widow won't have any taxes to pay on the gift however his mother quite possibly could. Any gift in excess of $12,000 per recipient in any one tax year triggers the need to file a Gift Tax Return. If his mother has never given any taxable gifts before, her $1,000,000 lifetime exclusion will avoid any taxes on the $397,000 payment to his widow. However, that will reduce the exclusion on her estate when she passes as the Gift Tax exclusion and the Estate Tax exclusion are linked.
Even though it's likely that nobody will pay any taxes on this, it's important that all GIs be aware of the implications of their failure to properly designate the beneficiaries on their SGLI and their Emergency Data Card! If his mother was not so fair-minded, she could keep the entire $400,000 and leave his widow penniless!
I'm a retired First Sergeant and can't count the number of times that I saw this happen in my 21+ years. A troop would get married and not update his or her beneficiaries and the spouse would be shocked to learn that they were getting NOTHING upon the member's death. Even worse were the situations where an ex-spouse was still listed as the beneficiary. When this happens, the spouse has NO legal claim to ANY of the funds and if the designated beneficiary decides to walk away there's NO way to stop them.
2007-08-16 10:46:32 · answer #3 · answered by Bostonian In MO 7 · 1⤊ 0⤋
Just cash the check!
http://www.irs.gov/pub/irs-pdf/p525.pdf
Page 19 states that death benefits are NOT taxable. This is from the IRS Publication 525. I have never heard of anyone being taxed on a death benefit from life insurance, and as such, should not be included on your tax return.
When big issues like this come up, consulting a professional is the best thing to do. It can save you A LOT of money.
I am sorry about your brother. Your brother is a hero and I am so grateful for the service that our men and women provide for the benefit of the rest of us. May God bless you and your family, and his wife and child(ren).
2007-08-16 08:50:36 · answer #4 · answered by tlc 3 · 3⤊ 0⤋
Proceeds from an insurance policy are not taxable. You should have your mother contact a CPA or Estate Attourney for specific details for your state.
States vary on the amount of the estate before they start taxing it.
2007-08-16 09:30:35 · answer #5 · answered by Anonymous · 2⤊ 0⤋
Call a CPA or lawyer - I don't think i would risk that amount of money to a Yahoo answer.
My understanding is that insurance death benefits are NOT taxable. But get some good legal advice.
2007-08-16 08:18:44 · answer #6 · answered by TANGERENEMAN 2 · 2⤊ 2⤋
A life insurance policy should not be taxable as capital gains after the policy owner has passed.
Call the policy, and your lawyer- they can tell you specifics
2007-08-16 08:34:03 · answer #7 · answered by webdude 2 · 0⤊ 3⤋
Try taking it out all at the same time and putting it on another bank
2007-08-16 08:22:59 · answer #8 · answered by Anonymous · 0⤊ 3⤋