What taxes will
the beneficiary of my life insurance policy have to pay?
Please remember that this
answer is provided in the spirit of public education, not as legal
advice. If you require legal advice for a particular situation, you
should consult an attorney.
The beneficiary will not have to
pay income taxes -- life insurance proceeds are exempt from the federal
income tax if they are received as a result of the insured's death.
Your estate may owe estate tax on the value of the proceeds, however.
Without careful estate tax planning, your life insurance proceeds will
be included in your taxable estate. Your estate will owe federal estate
taxes if it is larger than $5 million, after subtracting any amount
received by your spouse. The federal estate tax rate is now 35%.