Will my beneficiaries have to pay taxes on the proceeds of my life insurance policy?
If you mean the death benefits of the insurance policy, then these funds are generally free from income tax to your named beneficiary or beneficiaries.
You may elect to have the insurance company hold on to these proceeds after your death and distribute them to your beneficiary at a later date or in a series of installments. The funds that the insurer holds are earning interest, and when a payment is made to your beneficiary, it may include both principal and interest earned by that principal, or only interest. Although the principal portion of the payment is tax free, the interest portion is taxable to your beneficiary as ordinary income.
In some cases, if you transfer the ownership of your life insurance policy to another party before your death for monetary value or other consideration, the proceeds paid to the beneficiary at your death could be considered taxable income to that beneficiary. This is a complicated matter, and you should seek the assistance of a tax professional before completing the transaction.
The proceeds of your life insurance policy may be subject to federal estate taxes if you have what's known as incidents of ownership in the policy. If you control the policy in any way--that is, you can cancel it, surrender it, borrow against it, pledge or assign it, or can change the beneficiary--then you possess incidents of ownership in the policy, and the proceeds of the policy may be subject to federal estate taxes when you die. You might postpone these estate taxes if the proceeds of the policy are to go to your spouse, but the taxes might come due later when your spouse dies. Again, these issues are complicated; seek the advice of a qualified professional when planning your estate.
Please be advised that this materials is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transactions(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent advisor.
Information provided has been prepared from sources and data we believe to be accurate, but we make no representation as to its accuracy or completeness. Data and information is not intended for solicitation or trading purposes. Please consult your tax and legal advisors regarding your individual situation. Neither AXA Equitable nor any of the data provided by AXA Equitable or its content providers, such as Broadridge Investor Communication Solutions, Inc., shall be liable for any errors or delays in the content, or for the actions taken in reliance therein. By accessing the AXA Equitable website, a user agrees to abide by the terms and conditions of the site including not redistributing the information found therein.
AXA Equitable Life Insurance Company (NY, NY). Securities are offered through AXA Advisors, LLC, NY, NY 212-314-4600 (member FINRA / SIPC). AXA Equitable and AXA Advisors are affiliated companies, do not provide legal or tax advice and are not affiliated with Broadridge Investor Communication Solutions, Inc.
© Copyright 2013 Broadridge Investor Communication Solutions, Inc. All rights reserved.
GE 65702 (12/2011)