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Life insurance distribution - taxable income?

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NBrazil

Member
What is the name of your state (only U.S. law)? Georgia

One of my brothers (whose legal residence was in Wisconsin - and who held dual citizenship in the USA and Australia) passed away last year. I have two other brothers, and one is the executor. He has found out that the deceased had a life insurance policy in Australia for which he will seek distribution (set up as divided equally between surviving brothers).

Very simply, does Uncle Sam get his share of this? Meaning do we get 1099's and pay taxes based on our income bracket? I ask because while not legally obligated we feel morally obligated to reimburse our mother who loaned this brother a hefty sum 6 months before he became suddenly ill and so we would each essentially pay her about 50% of our distribution. I'm in the 25% tax bracket so, inquiring minds want to know if, in fulfilling this obligation I'm basically out 75% of the funds?

Regardless of the answer, we have chosen to make her whole this way financially.

Thanks.What is the name of your state (only U.S. law)?
 


anteater

Senior Member
Generally, the proceeds from a life insurance policy are not subject to income tax. I believe that is the case even if the policy was with an Aussie company, but I wouldn't swear to it.

You might want to confirm that with the IRS: 1-800-829-1040

The sum of my Australian knowledge comes from Animal Planet and the Discovery Channel. And they've never covered life insurance.
 

ShyCat

Senior Member
The benefit amount is not taxable income, but any interest accrued since death (and paid to the beneficiary along with the benefit) will be taxable income. U.S. companies would submit a 1099-INT to report the interest earned.
 

NBrazil

Member
One more question comes to mind...

Hopefully someone who can answer it will check back here so I won't need to start a new thread...

I only just found out about this life insurance policy, and my brother passed away 11 months ago. The executor brother seems to have known about it longer and I get the impression (from another brother) that he is handling things in some kind of order. Okay, fine.

Before I talk with him about what the hold up is, I'd like to know is there any statute of limitations/time limitations in regards to life insurance company pay outs? (I know, nobody here knows Australian law, just trying to get a feel for it in regards to USA laws.) In other words, is this something that needs to be done within a year of death or is it not relevant?

Common sense makes me feel that it isn't relevant, but common sense doesn't always have anything to do with the law, LOL.
 

ShyCat

Senior Member
In other words, is this something that needs to be done within a year of death or is it not relevant?

No, there's no clock ticking down from time of death to a time when the insurance company is no longer bound by their contract to pay benefits to the named beneficiary. You'll get paid, with interest.
 

NBrazil

Member
Hm, now if I can just figure out why that brother is sitting on this? I mean a life insurance pay out isn't a part of probate... I would think. I'm going to have to call him and ask what's up? Our mom isn't getting any younger and our dollar isn't getting any stronger!
 

NBrazil

Member
Ah

Hm - seems he is not a "delegator" - and a control freak and under a lot of pressures from his business and immediate family and so has let some things slide.

Well, it is coming up on a year and I think there are laws in regards to probate (this being a different issue than the insurance) timing. Sigh. I'll be seeing him in a month (which will be a week past the anniversary of the death) and along with my other brother, putting everything on the table.

One of the issues is a condo in Wisconsin. Bought at $320,000 three years ago, now worth $180,000 and ZERO money in the estate to pay for it when the tenants move out at the end of the year. I figure since it is owned by the estate and the estate has no money to pay for it, that we'll just have to let it go. No harm, no fowl to the "beneficiaries" because it is the estate's responsibility, right? In other words, the bank can't come after us as we have not "benefitted" so to speak, from it.
 

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