My father had directed in his will that a $350,000.00 life insurance payout be put into a bank account. Interest from that account is to go to his widow (my stepmother). At the time of her death the 350K is to be split among his 4 children. I read that life insurance payments are non-taxable. Is it still not taxable if put in this account and maybe not dispersed for a few years?

Good question Eric, I don't know the answer, my guess would be it will be taxable.

Taxable because it would have been paid out once and than moved to a different plan. MD

OK, here's the skinny, If the 4 kids are the primary beneficiaries, they will receive the death benefit proceeds, tax free. The beneficiary designation overrides the the will. If the kids want to take the money and run, that is their prerogative. The will means nothing in this case. The kids are not required to pay out anything. On the other hand, if a non-natural person is named as the primary beneficiary, such as "the estate of the insured", or a trust you will lose the tax benefits of the death benefit and the proceeds will be taxable through probate or the trust. Generally, it is rarely a good financial maneuver to make a trust or the estate the beneficiary of a life insurance policy. There are some rare instances where an irrevocable life insurance trust makes sense, but that doesn't appear to apply here.

I would check into it very closely, but I also agree that a life insurance payout put in his widow's name is not but it is not a life insurance payout when you the children receive your shares. So who's names are listed as beneficiaries? There are ways that the income could pass as non taxable and if the children honor their dad's wishes the earnings or the equivalent of the intended earnings could be given to the so named person, but that income would be taxable. With current interest rates earnings on 350K would not be too high.

Bryce

Are we talking about the federal estate tax?

Isn't the exemption pretty big these days?

Jim

Been out of the insurance industry a couple years now but wouldn't another factor be the kind of policy(s) the dad had/has.

James, didn't Biden just double these type of taxes? Or was that other kinds of taxes Biden doubled?

I don't think a president can amend tax law by EO. Why doesn't that take an act of Congress?

Jim

The news stories I heard didn't say if it was or was not going to be done by EO. so I'm not sure how he will double the capital gains taxes and corporate taxes.

All interest earned by the death benefit is taxable.

this is worth investigating

look at putting all the money into a living trust , the trust is basically a corporation that takes care of the widow since every dollar of the interest would be paid out in costs the corporation would have no income to tax. ok maybe show 1 dollar income each year.

the house the land , the car , everything could likely be owned by the trust , the trust is managed by a board of trustees the kids and the widow being the members of the board of trustees.

she can keep here SS for spending cash and the trust can pay for the upkeep of the house , land , car ect.

then when she passes the trust can either be dissolved or continue working for the trustees , new trustees can be added as you get older.

I never understood life insurance...the wife told me that we were both worth more dead than alive.

I asked her if she wanted to duel it out?

When my grandfather died in 1986 we had a law firm that was supposed to be experts in estate law. Well they botched it and we wound up paying $4,500,000.00 in estate taxes. Killed off all 25,000 of our mink just to pay part of it. I left the farm in 1994 and have had no say in what was done since. My father and brother used the same law firm again and they have botched it AGAIN! Now there is no estate tax but we are going to take it in the shorts in inheritance and income taxes. The beneficiary of the insurance policy I mentioned is "the estate of Fred Space" so all payouts are taxed. Should have been my siblings names then there would be no tax. He also had a large Inheritance IRA which will be taxed at over 50%. He still had stock in the family company that is worth over $1,000,000.00. Dad should have signed this over to my brother and nephew years ago. This is what got us in the bind with my grandfathers death 35 years ago, he had too much stock in the family business. Why they kept using the same law firm after their ignorance of estate law cost us 4.5 million I truly do not understand. What a mess! Eric

Dam Eric, I'm sorry to hear that. I've been forced to work with a few lawyers in the past that were overly arrogant and undereducated, where it counted.