Help - I need a Lawyer

[morbius47]

Or an accountant, or anyone who would know the answer to the following:

My wife's grandfather passed away. He left a small estate, financially insignificant. But, he left $100,000.00 life insurance policy to his daughter. She is wanting to split it with her daughters but we are unsure of the tax implications. I could pay for an answer, but all the hospital bills and arrangements have tapped us out until the policy gets paid. There are other factors that mean we need to move on the split as soon as the money comes in, so I need the answer pretty quick. Anyone know anything about this?

(I have tried the IRS website and it tells me some info I don't really understand.)

[The Swan]

Have you tried Lionel Hutz Attorney at Law?? He also fixes shoes

[morbius47]

I have a good cobbler already, but thanks.

[MJBinNC]

Well - it would have (probably) no tax consequences on your MIL, since she is a direct line decendent. IRS wise - mil would be fine...but you may be required to recognize on your tax return any gift that she gives to her through official channels. (basically, if she has no tax increase due to the policy, then there would be no reason to try to take a tax deduction for a "gift")
Now...I don't know what state you are in and what the inheritance laws are for it. That could be where the problem would be.
No - I'm not a lawyer....but I am a CPA

[morbius47]

Texas. And thanks for the imput.

[MJBinNC]

Not a problem....
texas does have some bizarre inheritance laws...but usual direct line relatives (daughters, sons, grandchildren) don't have issues. The only prob with the insurance policy is that is was only MIL as beneficiary...but that shouldn't be a biggie.

[Suil Liath]

Morb:

There are no taxes to your wife as life insurance is not taxable to the beneficiary.

Dividing it among the daughters can be done $11,000 per daughter per year to avoid taxes.

Hope that helps.

[morbius47]

hmmm

[morbius47]

thanks sl

[I Like Freckles]

Not a lawyer (yet). And not in Texas in any event. That said, I think MJ has the right answer for you. Life insurance is not federal taxable income to the beneficiary. So your MIL should not have to pay taxes on it. And Texas has no income tax, right? So she should be fine there in any event.

Then, she intends to disburse some portion of the policy proceeds to her daughters if I understand you properly. Gifts are not taxed as income by the recipient under the federal tax code.

There may, however, be some implications with regards to inheritance taxes like MJ said. Basically, a gift over the annual exemption (which I believe is $11k/person/year) may have some impact on the total amount of your MIL's estate that is exempted from estate taxes when she passes. Depending on how many daughter she has and how much of the $100k she plans to split up, this all may fall into the annual exemption anyway -- i.e. if she has 4 daughters who are each married, she could give each of them $22k/year ($11k to the daughter and $11k to the husband). And you may be in luck since I believe the annual exemption runs on a calendar year basis. In other words, your MIL could make a below the exemption limit gift to each daughter on December 31 and then a comparable gift on January 1 and thereby use both the 2005 and 2006 exemptions.

[I Like Freckles]

Or what Suil said. D'oh.

[Ellaroo]

^^^ ILF, MJ, Suil - I'm very impressed!

[sawyerhasbestlines]

Not that I know anything about this, but - I don't think "life insurance" qualifies as "inheritance." My thinking is inheritance is something one person passes on to another. It was never your grandfathers money, it's coming from an insurance policy. To me, it's treated as income, and Texas doesn't have income tax.

[JohnLocke]

WHAT?!

...is going on in here?