Life insurance

[TAX4US]

For purposes of Form 1041, Is life insurance taxable to the Estate. No federal Estate return required gross Estate was less than 40K. Estate was named beneficiary and check was paid to Estate. I think it has to be Taxable on form 1041. What do you think?

[DaveO]

If it is term life insurance I would say no. Just because it is paid to the estate that doesn't change the nature of the income. If it would not have been taxable if paid to an individual it will not be taxable just because it was paid to the estate.

[JoshinNC]

Taxability of Life Insurance comes down to "incidents of ownership"

If the decedent owned the contract it is part of the estate, if they didn't, it isn't.

[Nashville]

Cornfused

Cornfused as they say down here.

What kind of tax is the original post talking about? The "Estate Tax" is Form 706, Estate "Income Tax" is Form 1041.

One would concern itself with the VALUE of life insurance (Form 706), and the other might concern itself with PROCEEDS of life insurance (Form 1041).

Too many unanswered questions about whether the value is to be included on Estate Tax, but I would definitely say NO to the proceeds ever being taxable on a Form 1041...

[JoshinNC]

Agree

Cornfused as they say down here.

What kind of tax is the original post talking about? The "Estate Tax" is Form 706, Estate "Income Tax" is Form 1041.

One would concern itself with the VALUE of life insurance (Form 706), and the other might concern itself with PROCEEDS of life insurance (Form 1041).

Too many unanswered questions about whether the value is to be included on Estate Tax, but I would definitely say NO to the proceeds ever being taxable on a Form 1041...

With Nash. The difference never occurred to me cuz I wouldn't have even thought about putting life insurance proceeds on a 1041.

[Burke]

Life Insurance is part of the estate for Estate Tax purposes (Form 706) regardless of who the beneficiary is, whether spouse, other relative or person, or the estate, as long as the deceased owned the policy. Form 712 is usually issued by the insurance company if requested and is used for reporting on Form 706.

If the estate is the bene, it will be included in the probate estate (for purposes of accounting of receipt and disbursement) to the proper authorities; it is not taxable income shown on Form 1041 reported to the IRS. Conversely, IRA proceeds payable to the estate would be considered taxable income reported on Form 1041. Taxable income/non-taxable income retains the same character as it would have been outside the estate. Whether it is term insurance or whole life has no bearing on either treatment.

[New York Enrolled Agent]

Too many unanswered questions about whether the value is to be included on Estate Tax, but I would definitely say NO to the proceeds ever being taxable on a Form 1041...

I agree with you that the death proceeds of the policy are excludable from gross income. However, often the proceeds received by the beneficiary (in this case apparently the estate) exceed the death proceeds with the excess being interest earned on the death proceeds from the day of death until the check is issued to the estate. I believe those proceeds (the interest) would be taxable income to the estate reportable on the 1041.

[Burke]

You are correct. Many years ago, insurance companies began paying interest from the date of death to the date of payment, since legally the proceeds were due on the day the insured died. So that interest is indeed taxable, and the beneficiary will receive a 1099INT for that amount whether it is a person or an estate.

[TAX4US]

My Fault. 706 not being filed. Insurance proceeds paid to estate. I mean't to say included for probate but not included for Income Tax on the 1041. Does this clear some confusion?

[Burke]

Yes, that is what I understood from your original post. Information given was for general purposes as well as replying to your OP. Not taxable on Form 1041, except for interest paid.