Taxes on insurance collected?

[Toto1223]

What is the name of your state? Ohio

My mother in law died over a year ago and left a life insurance policy through her work. There was no beneficiary. Now my sister in law says that all the kids (5) need to give her their social security numbers so they can collect on the policy because they have to pay taxes on it. The policy is for $2000.00. This sister in law told them that she is the executrix even though my mother in law did not have a will. What we need to know is if they will have to pay taxes on this money. My husband is reluctant to give his sister his social security number without having some answers about why and how she can even collect from this policy. She said the taxes are $500.00. We also suspect that she somehow already collected this money and now wants the rest of the kids to pay the taxes on it. Any advice??What is the name of your state?

 

[anteater]

What is the name of your state? Ohio

My mother in law died over a year ago and left a life insurance policy through her work. There was no beneficiary. Now my sister in law says that all the kids (5) need to give her their social security numbers so they can collect on the policy because they have to pay taxes on it. The policy is for $2000.00. This sister in law told them that she is the executrix even though my mother in law did not have a will. What we need to know is if they will have to pay taxes on this money. My husband is reluctant to give his sister his social security number without having some answers about why and how she can even collect from this policy. She said the taxes are $500.00. We also suspect that she somehow already collected this money and now wants the rest of the kids to pay the taxes on it. Any advice??What is the name of your state?

Sister-in-law's claim to be executrix is dubious. Normally, potential heirs would be notified of the appointment of an estate executor/administrator. Don't know about Ohio, but in many states, other potential heirs to an intestate estate would also need to provide their consent to that appointment. Ask sister-in-law to provide a copy of her letters testamentary. Or, alternatively, call or visit the Probate Court in the county in which M-I-L passed away to find out whether an estate has been opened and to obtain any documents in the probate file.

Generally, life insurance proceeds are not subject to income tax. Since M-I-L apparently did not own the policy, it should not be subject to federal estate tax. However, since there was no named beneficiary and the proceeds would be payable to the estate, the proceeds could be subject to Ohio estate tax. However, my memory is that Ohio estate tax does not kick in until the estate value reaches something like $340,000. In any event, the estate should be responsible for paying any estate tax.

Why not have hubby speak to the other siblings and try to get agreement to presenting a united front -- sister-in-law gets nothing until she explains in detail what is going on.

 

[Dandy Don]

Ask her to explain specifically what type of taxes she is referring to--is it state income tax, federal income tax, exactly what, and then double check what she is saying by consulting the tax authorities. And get her to explain exactly what source is telling her that.