Inheritance Tax Midland Park, NJ – Life Insurance Trust Lawyer
The general rule governing the proceeds of any life insurance contract insuring the life of an individual is that the proceeds are not taxable, so long as the proceeds are payable to one or more named beneficiaries and not the estate.
Some other principals regarding life insurance are:
- The proceeds are also non-taxable if paid to a trustee of a testamentary trust created under the will of the decedent
- The proceeds of a life insurance contract which combine a life insurance and an annuity feature are subject to the New Jersey Inheritance Taxation as well as New Jersey Estate Taxation.
- A loan by the insurance company made to the decedent who is the insured is not considered a debt of the decedent but is considered an advance on the cash value of the policy.
As a caution – if it is intended to have the insurance proceeds used to pay death taxes, the will should name a residuary heir as beneficiary and direct that taxes are to be paid out of the residuary portion. For New Jersey Estate Tax concerns, life insurance proceeds are taxable, as they are for Federal Estate Taxes; but, life insurance proceeds without an annuity are not taxable or reportable on a New Jersey Inheritance Tax Return.
Steven W. Tarta, Esq. brings more than 45 years of professional experience to his practice, with a sophisticated focus on Estate Tax Planning, Living Trusts and Elder Law.