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Taxes on life insurance proceeds and giving those proceeds to a relative

Forum|Forum|2 years ago
June 28, 2023
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To whom it may concern,

Recently my wife passed and at the time we weren't on good terms. She had a life insurance policy that I was the beneficiary, but was supposed to change the beneficiary to our daughter, but didn't do it before her death. So my question is 2-fold:

1. Are the proceeds from the insurance policy taxable?

2. When I give those proceeds to my daughter, will she have to pay taxes? She currently is not working and planning on attending a PhD program abroad.

Thanks

Ask the Experts - Energy - June 2023

Best answer by DoninGA

As the beneficiary of life insurance you do not report the proceeds from the insurance on your tax return.

If you give a gift to an individual they do not report the gift on their tax return, regardless of the amount received.

If the gift you give is more than $17,000 in 2023 then you have to report the gift given on IRS Form 709. There will not be any gift taxes owed if the total of all gifts you have ever given is less than $12.92 million.

TurboTax does not support IRS Form 709

Go to this IRS website for Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return - https://www.irs.gov/forms-pubs/about-form-709

JBedford

Hi, @Dgyoung15 , thanks for the question! To answer, as a general rule, life insurance proceeds are not taxable. Additionally, bona fide gifts are generally not taxable to the recipient. However, it does count toward your "lifetime exclusion limit", as explained in this TurboTax article.

Hope this helps, please let me know if this raises additional questions!

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Dgyoung15Author

Thanks JBedford for your help!

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BettieG

Hi @Dgyoung15. I'm so sorry for your and your daughter's loss.

Generally, life insurance proceeds you receive as a beneficiary due to the death of the insured are not includable in gross income and you don't have to report them (i.e., they're neither reportable or taxable).

Should you decide to give those proceeds to your daughter, they would not be taxable to your daughter. Having said that, depending upon the amount of the proceeds, you may have to pay a gift tax on the gift of more than $17,000 (or $34,000 for a married couple) to your daughter. These are the annual exclusion amounts for 2023.

I hope this is helpful; If so, please give me a thumbs up!

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Dgyoung15Author

Thank you BettieG for your condolences and answer to my questions

DoninGAAnswer

Employee

As the beneficiary of life insurance you do not report the proceeds from the insurance on your tax return.

If you give a gift to an individual they do not report the gift on their tax return, regardless of the amount received.

If the gift you give is more than $17,000 in 2023 then you have to report the gift given on IRS Form 709. There will not be any gift taxes owed if the total of all gifts you have ever given is less than $12.92 million.

TurboTax does not support IRS Form 709

Go to this IRS website for Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return - https://www.irs.gov/forms-pubs/about-form-709

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Dgyoung15Author

Thanks DoninGA for taking the time to answer my questions. I believe yours was a great summary of the other answers plus some added details that weren't mentioned before.

All the best,