Life Insurance and Estate Tax Issues

• Author: Seymour Goldberg
• Profession: Senior partner in the law firm of Goldberg & Goldberg, P.C., in Woodbury, New York
• Pages: 55-57

Many individuals in the United States own life insurance policies. In the

event that an individual dies and owns a life insurance policy, then for

estate tax purposes the proceeds of the life insurance policy are included

in his or her gross estate.

If the surviving spouse is the beneciary, then the proceeds of the life

insurance policy are not subject to an estate tax since the proceeds qualify

as a marital deduction. However, if the life insurance proceeds are pay-

able to other than the surviving spouse or a qualifying charity, then they

can be subject to a federal estate tax and/or a state estate tax.

Since the federal estate tax exemption as of the calendar year 2013 is

$5,250,000 and subject to ination adjustments, then an individual who

dies with less than the threshold amount should not be concerned about

whether his or her estate will be subject to a federal estate tax liability.

The life insurance proceeds are included in determining whether or not

the threshold amount is satised. Also, adjusted taxable gifts are included

in determining whether or not the threshold amount is satised. In 2014,

the threshold amount for the federal estate tax exemption increased to

$5,340,000.

Even if the threshold amount for federal estate tax is high, the state

estate tax or state inheritance tax exemption can be a lot lower.

Many states have estate tax exemptions that are considerably less than

the federal estate tax exemption. A number of states do not have any state

estate taxes. In those states that have state estate taxes, the tax rate can

be signicant.

An example based on hypothetical State X law follows:

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LIFE INSURANCE AND

ESTATE TAX ISSUES