22 Mar Is inherited insurance money taxable?
Q. My husband died in April 2017. I received a payment from his insurance policy. Do I have to pay taxes on that?
A. We’re sorry to hear about your husband.
Life insurance proceeds are generally not taxable income when received by individual beneficiaries, said William McDevitt, a certified public accountant with Wilkin & Guttenplan in East Brunswick.
But the taxation of insurance proceeds depend on the facts, so it’s possible the life insurance may be includable on your husband’s estate tax return, he said.
McDevitt said most insurance policies will have an owner, an insured and a beneficiary.
“Typically people buy insurance on their own lives and make their heirs the beneficiary of the policy,” he said. “In this fact pattern, the insurance proceeds are not taxable income when received by the beneficiaries, but will be includable in the estate — possibly taxable — of the decedent because he or she was the owner of the policy.”
Alternatively, McDevitt said, the insurance could have been acquired by a life insurance trust and therefore would be owned by the trust and not the decedent. As such, proceeds would not be includable in the estate, he said.
To be sure, talk to the insurance company and your tax preparer to make sure you get answers specific to your situation.
Email your questions to moc.p1555958545leHye1555958545noMJN1555958545@ksA1555958545.