Life Insurance

My grandfather passed away a few months ago. He worked for Armco Steel in Canada, a division of Armco Steel United States (which is now AK Steel). He retired sometime around 1982. As a benefit from his years of empolyment he recieved a life insurance policy through Armco United States, Middletown Ohio. He listed my mother and her sister as sole beneficiaries of the policy. The policy amount is approximately $126,000. My question is will this be taxed by the IRS. I have read in some documents that as he retired prior to January 1 1984 or was older than 55 on January 1 1984 the policy is not subject to taxes. The contact we have for AK steel says that it shouldn't be taxed, for the same reason. I am looking for some advise from someone who understands American Tax Laws with respect to Estates and Life Insurance Policies, as up here in Canada we are not accustomed to American Tax Law.

Thank-you

In the US life insurance proceeds are NOT subject to INCOME TAX in the circumsatnces you described.

You haven't mentioned whether your mother and sister are US citzens still living in some state in the US or whether they are former US citizens who may be now living in Canada, but assuming they presently live in the US (since the IRS has no jurisdiction in Canada), they should consult with a certified public accountant or tax accountant in their city to get information about whether or not the inheritance is taxable on the federal level (if I'm not mistaken, the first $650,000 of an estate is exempt from federal taxes), so it looks like they may not owe anything on the federal level.

However, the inheritance might be subject to state income tax, so the accountant or tax professional could advise them whether or not that is true.

DANDY DON