Life Insurance payoff
We are in California. 3 beneficiaries to a life insurance policy. Do we pay taxes for life insurance payoff for $100,000? If 1 person disclaim their share and it goes to the other 2 beneficiaries will they be taxed on that amount? Or will it just be added to whatever their original share is? I want to make sure we do not pay anything extra. Thank you for your help
Quick Answer:
Generally, life insurance proceeds paid to a beneficiary are not subject to federal or California state income tax. Therefore, the $100,000 payoff would typically be tax-free to the beneficiaries.
If one person makes a qualified disclaimer of their share, that share passes to the other beneficiaries as if the disclaiming person never received it. For income tax purposes, the additional amount received by the remaining beneficiaries due to the disclaimer would also generally be income tax-free, just like their original share of the life insurance proceeds. This means they would not be taxed on the extra amount, and it simply adds to their tax-free receipt.
Note: This answer is provided for convenience only. It is important that you speak to a CPA about your individual tax situation.
