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1041 Insurance Trust

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    1041 Insurance Trust

    A life insurance policy of 200,000 that is in an insurance trust was cashed in. the gain made on the policy was $116,000.
    10 percent was withheld at the time of cash in. the trust will now owe the balance when the return is filed.
    1. Is this gain ordinary income taxed at the maximum trust rate of 37 percent.
    or is this gain capital gain income taxed at 20 percent.

    2. the policy was cashed in in january 2018. does the entire tax liability have to be paid as an estimated tax in april 2018?

    thank you for any help.....

    Carol

    #2
    Sounds like an Irrevocable Life Insurance Trust. Normally this is the only asset in the trust. These are commonly used to avoid Estate taxes, and to shelter cash values from creditors, etc. Generally, any life insurance policy gain is taxed at ordinary income tax rates. When the grantor sets one of these up, they cede any rights of ownership to the trust and it cannot be changed back into their name.
    Last edited by Burke; 04-08-2018, 12:45 PM.

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