How does Life Insurance and Estate Tax work?

Have Questions About Life Insurance and Estate Tax? Here’s What You Need to Know

Deciding that you would like to leave your loved ones with some amount of financial support after you die is a wonderful decision. Perhaps you plan to leave the insurance death benefit as part of your overall estate. If this is the case, there are some things you will need to know with regards to life insurance and estate tax.
 
When a named beneficiary receives a death benefit, that money is income tax-free. Where things get a little more complicated, however, is that your life insurance death benefit may be included as part of your estate and, therefore, your life insurance and estate tax come together. There are a couple of different scenarios in which your life insurance proceeds would come under your estate and will, therefore, be included when estate taxes are calculated.
 
Although you will want to call and speak to an insurance agent to learn more about the ins and outs of life insurance and estate tax, there are some ways people get around the taxation of their insurance benefits. It all comes down to ownership.
 
If you’re concerned about your life insurance and estate tax, you can change the ownership of your policy and, by doing so, avoid the taxation. The following is the process through which this may be achieved:
 
*First, select an adult as the new owner of your policy; this could be one of your beneficiaries. Contact your insurance provider to have the transfer officially documented.
 
*The new owner will be required to pay the premiums, however, you are able to gift up to a certain amount of money and this value can be put toward the payment of the premiums.
 
*Ask your life insurance provider for documentation of this change for official proof.
 
*Be aware that this change is irreversible so be careful when selecting the new owner of your policy.
 

Contact one of our licensed insurance agent today if you have more questions about life insurance and estate tax.

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