[Michael Brent]

I am a life insurance beneficiary as my wife passed away. Is this sum subject to income tax?

[IntlTax]

No, the amount is not taxable to you. See Code § 101.

[AtlantaTaxExpert]

What IntlTax says is true as it applies to your income tax liability.

However, if your wife owned the life insurance policy, the proceeds of the policy is a part of her estate and MAY be subject to estate taxes IF her estate, in total, exceeded $2 million in 2008.

[Michael Brent]

What IntlTax says is true as it applies to your income tax liability.

However, if your wife owned the life insurance policy, the proceeds of the policy is a part of her estate and MAY be subject to estate taxes IF her estate, in total, exceeded $2 million in 2008.

So is above basically code 101 as stated by IntlTax? Thank you.

[IntlTax]

As long as you are the beneficiary, you are not taxable on the life insurance proceeds and there should be no estate tax issue.

ATE's comments apply only if the estate of your wife was the beneficiary.

[AtlantaTaxExpert]

IntlTax:

Unless the law has changed in the past seven years (when this issue was covered in my Certified Financial Planner course), if the deceased is the owner of the life insurance policy, the proceeds of the policy IS considree to be part of the deceased's estate, even though the proceeds passes directly to the beneficiary without first going through probate.

That is the reason WHY I own my wife's ife insurance polciy, and vice versa, and why a fair number of my clients have done the same for their and their spouse's insurance policies.

Normally, the $2 million ceiling for estate tax exclusion keeps the most estates out of the requirement to file an estate tax return and pay estate taxes, but the large term life insurance policies can push the estate over that limit very easily.

[IntlTax]

ATE, you are correct.