[jujubetree]

Q as below:

1) if parents send the life insurance as gift to kid , any gift tax consequence?

2) If trust distribute life insurance proceeds to beneficiary ,beneficiary taxed?

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[Hello928]

1) If the amount is over $14,000, It will be taxed to the parent but not to the son. If parent dies, son will receive the proceed and it will not be taxable unless he receives interest on that amount.

2) I think the whole amount is taxed unless Insurance Proceeds directly transferred to beneficiary upon death.

Just my thoughts!! If any one else can confirm?

[stoleway]

1. Any amount of the cash value exceeding $14000 will be taxed. The transferor pays all the gift tax, if the transferor dies later on, transferee will be able to receive the insurance pay out without any tax consequences.

2. Trust will only be taxed if owner had revocable interest in the trust or if the owner died in less than 3 yrs after transferring the insurance into a trust.

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[Anonymous]

@Stoleway, can you please explain what is meant by: “owner had revocable interest in the trust”?

[Tux]

Revocable interest means that the owner of the trust still has ownership and control of the assets. They can still change their mind regarding taking back the asset or changing the beneficiary.

To stoleway –

may I ask why the trust is taxed on the life insurance proceeds if the owner has revocable interest in the trust?

I thought that when an owner still had control of an asset, it was taxed on their personal tax return – NOT the tax return of the trust.

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[stoleway]

@amor…Tux explanation is correct.

@Tux…when an owner still has control over assets without transferring it into a trust, the assets goes into his estate upon death. If you have a Will, that document states who inherits your estate. If you die without a Will, state law determine who will inherit your estate. In both cases, if you have enough assets, a probate court has to supervise the settling of the estate.

Unless you owe taxes before death, most estates are exempted from taxes to the amount of $5.43million. The rest exceeding this amount will be taxed at around 35 to 40%.

A trust is a legal agreement in which a person (called a Grantor- in this case, the owner of the policy) states that one or more people (called Trustees) hold the Grantor’s assets for certain people (called the beneficiaries) subject to certain duties and the terms of the agreement.

Big difference between estate and trust, don't mix them up. I'm not sure if I answered your question, but this should give you some clue.

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[Author]

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