Cashing In Life Insurance

[erchess]

I am confused here and ya'll are the people I turn to when confused. A client who recently cleared bankruptcy states that his mother (net worth 28 M) at the last available opportunity cashed out a life insurance policy on herself and had the proceeds sent to the three children including him. I looked in TTB and found out that any amount received beyond premiums less nontaxable dividends will be taxable. SOOOOOO What are the odds that she has already received a statement of what will be taxable? Also am I right in thinking that the tax consequences if any belong to her not the children?

[JG EA]

I am confused here and ya'll are the people I turn to when confused. A client who recently cleared bankruptcy states that his mother (net worth 28 M) at the last available opportunity cashed out a life insurance policy on herself and had the proceeds sent to the three children including him. I looked in TTB and found out that any amount received beyond premiums less nontaxable dividends will be taxable. SOOOOOO What are the odds that she has already received a statement of what will be taxable? Also am I right in thinking that the tax consequences if any belong to her not the children?

The mother will receive a 1099R in 2011. The children got a gift.

[Burke]

That is correct. And that info may have been on the check stub and/or accompanying letter as well. If not, she can get it from the insurance company before the 1099R goes out.

[JON]

In the future

ask the company for the information before cashing in. They are happy to provide it.

[erchess]

Good Points All

The good news is that Mom worked with both her financial adviser and her tax professional before making any move so they're all over the situation. However my client appreciates my concern for his Mom. And hey in another family I might have been able to help Mom and collect an appropriate fee.