Another Taxing Question for Beneficiaries

Q. Does a benificiary of an annuity or life insurance have to pay taxes upon the death of the benefactor? If the answer is yes, how is it calculated.


A.The beneficiary of a life insurance policy does not have to pay taxes on the proceeds from the policy. The beneficiary does have to pay taxes on an annuity.

For instance, let's say your parent put $100,000 into an annuity and through some miracle it is now worth $200,000. When the parent dies, the taxes on the gains of the annuity have to be paid. Gains from an annuity are taxed as ordinary income so in this situation, $30,000 - $40,0000 could be lost to income taxes.

Additionally, the full value of the annuity ($200,000) plus the value of all life insurance owned by the parent are included in the value of their estate. If the value of the estate is greater than the Federal exemption (currently $1,500,000), the excess is taxed beginning at 37%.

Your posted comments on this and other questions are welcome.
If you have a question for Jeff an answer is just a click away.
Find a wealth of information at Jeff's website.