My interest wrote:

- quote -

As someone said above the key phrase is "incidences of
ownership". If you retain any rights of control over the
policy, it can be included in your estate (access to
loanable cash values, rights to designate beneficiaries,
etc).

Many people use trusts and/or family LLC & LLP to remove an
insurance product from their estates, but do not realize
that their control over the trust/corp gives them incidences
of ownership.

I do not work with group policies, but if you have an
ongoing right to change the policy beneficiary (which I
imagine you do) you have incidences of ownership and it will
be includable in your taxable estate.

Whether or not your beneficiaries actually pay taxes on your
estate are another matter. Than depends on who your 'benes'
are, the value or your estate at that time, and current
estate tax laws (which are heading towards major change in
the next 3 years).

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"My interest" <myinterest[at]gmail.com> wrote:

- quote -

It depends. If a special type of trust is used to make sure
that whatever is left to the non-citizen spouse will be
subject to estate tax when she dies, you can still get an
unlimited martial deduction.

Without that you get to pass tax free what you would to
anyone who is not your spouse. That is $2 million for
people dying in 2007 and 2007, $3.5 million for people dying
in 2008, no tax at all for people dying in 2010, and back to
$1 million again for people who die in 2011 or after (unless
the law is changed again, of course).

Stu

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William Brenner <wbrenner[at]nospamplease.net> writes:

- quote -

No, it's not.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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- quote -

So does it mean, typically, the insurance proceed will be
more likely included in the deceased estate? I don't have
any special point that I can think of, my life insurance
policy is sponsored by my employer, i.e. part of a group
insurance policy and I do have to specify the beneficiary.

BTW, I know US citizens have unlimited marital deduction.
What's the limit that a non-US citizen can inherit tax free
from his deceased spouse?

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"My interest" <myinterest[at]gmail.com> wrote:

- quote -

First of all the reason someone would want to own his own
policy is that as the owner he gets to be the one to borrow
against the cash value of the policy, and he gets to choose
the beneficiary of the death benefit.

But you are confusing estate tax with income tax. They are
separate taxes and generally have little or nothing to do
with each other. Insurance proceeds are generally not
included in taxable income for income tax purposes. But the
death benefit of life insurance (in which the decedent had
any incidents of ownership irrespective of who the
beneficiary is) is included in his estatate for estate tax
purposes.

Stu

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William Brenner <wbrenner[at]nospamplease.net> wrote:
- quote -

Taxable for income tax purposes? Generally no. But if the
child took the policy out on himself and the parent paid to
become the owner, then the death benefit would be taxable.

Stu

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"My interest" <myinterest[at]gmail.com> wrote:
- quote -

No and no.

The beneficiary does not receive any taxable income from life
insurance on another person.

Insurance proceeds are included in the taxable estate of the
policy holder if the holder retained any of the "incidents
of ownership." There are several factors that can be
incidents of ownership but I don't have a list at hand. The
most commen incident of ownership, however, is the right to
designate or change the beneficiary. It does not matter that
the deceased doesn't receive the policy proceeds.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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Shyster1040 wrote:

- quote -

As a corollary to that, is it true that life insurance
proceeds paid to a policy owner/beneficiary is treated as
taxable income?

An example would be parental ownership of a policy on a
child, with the parent(s) as beneficiary.

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Shyster1040 wrote:

- quote -

Assuming the insured person has no interested in the death
benefit (why a dead person want to have any interest in his
life policy?), so what you are saying is the death benefit
is not included in the decend's estate, i.e. it has no
implication on the inheritance perspective. Is it correct?

Then I assume the beneficiary will have to pay some kind of
income tax? Is it correct?

--
Moderator:
The general rule in the United States is "the beneficiary
does not pay income taxes on life insurance proceeds."

The only issue is whether or not the insurance proceeds are
included in the decedent's estate for federal estate tax
purposes. So unless the decedent was very wealthy, this
issue is unlikely to arise.

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If the decedent insured held any of the incidents of
ownership in the life insurance policy, then the proceeds
payable on the decedent's death are included in the
decedent's estate for federal estate tax purposes.

Thus, if the person who is the insured under the policy
(i.e., the person whose death will trigger payment of the
death benefit) has no ownership interest in, or control
over, the policy, the death benefit is not included in the
insured's estate upon death.

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Someone please correct my mistakes, but I believe ordinarily
life insurance death benefits are not subject to taxation.
However, they are included in one's total estate for
determining any non-exemptable remainder that is subject to
estate tax.

Ordinarily the unlimited marital deduction would allow you
to transfer your estate to your spouse upon your death
without paying federal estate taxes, but is only available
to US citizens. If your estate is large enough that you will
be subject to estate tax, consider an irrevocable life
insurance trust or other vehicle to remove the asset from
your estate. I suggest you consult a lawyer, estate planner,
and/or CPA to confirm how a non US citizen will affect the
taxes.

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"My interest" <myinterest[at]gmail.com> wrote:

- quote -

There is a Federal estate tax, which can include the life
insurance if the decedent had an interest in the policy. If
the decedent had the right to change the beneficiary, it
will usually be included in the taxable estate. It is not an
inheritance tax. Some states (like NJ for example) do have
an inheritance tax.

___________________________________
<<< Benjamin Yazersky, CPA [NJ & NY] > > -----> real address on hobokeni or hobokenx <-----

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"My interest" <myinterest[at]gmail.com> wrote:

- quote -

If you are considered the owner of life insurance when you
die, the death benefit is included in your estate for estate
tax purposes. If you are talking about a non-citizen
spouse, you can have the spouse be the owner of the policy,
and she will then receive the death benefit free of both
income and estate tax.

Frequently this kind of thing is done using a life insurance
trust, though it is not necessary.

Stu

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Does life insurance have any inheritance tax associated with
it? ... especiallly if the beneficiary is not a US citizen
or even not a US resident?

(Unlike many other countries, US taxes inheritance tax for
property transfer between husband and wife if the receiving
spouse is not a US citizen. So I wonder is there any
implications on the life insurance proceeds.)

Thanks.

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