Your life insurance policy may be taxed after you die, unless you take steps now to keep that from happening. Policies that name a spouse as the beneficiary are safe from being taxed. The policies that can be taxed are those that name someone other than the spouse as the beneficiary.
What You Need to Know
If the beneficiary on your life policy is someone other than your spouse, the policy will automatically be included in your taxable estate after your death. Your policy can be taxed if your taxable estate is larger than the state or federal estate tax exemption. If you do not want that to happen, you can transfer ownership of the policy to another individual or place the policy in a trust.
If you transfer ownership, you no longer will have control over the policy and you will not be able to choose beneficiaries. If you decide to put the policy in a trust, the trust would own the policy and you would be able to choose the beneficiary. The trust must be irrevocable in order to be protected from taxation, and you cannot be the trustee. If you are considering transferring your life insurance policy to another individual, or wish to place your policy in a trust, do not do so without the assistance of a qualified elder law attorney.
