Frequently Asked Questions Regarding Life Insurance Policy Proceeds

Q: How much in taxes will the beneficiary on a life insurance policy have to pay?

A: The beneficiary of a life insurance policy will have to pay no income taxes on the life insurance proceeds. The proceeds of life insurance are exempt from federal and state income taxes upon the death of the insured. However, estate taxes may be payable on the proceeds. In the event the insured=s estate has more than $5,340,000 in the year 2014 (the amount is indexed for inflation), there will be taxation on the portion of the life insurance proceeds that brings the estate over $5,340,000. To avoid estate taxation, it is important to have an estate planning attorney place the proceeds from the life insurance policy into a qualified irrevocable life insurance trust.