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Richard, Tax Attorney
Category: Tax
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Experience:  29 years of experience as a tax, real estate, and business attorney.
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My son passed away in 2007 and left a life insurance policy

Customer Question

My son passed away in 2007 and left a life insurance policy to my daughter. The amount of the life insurance policy is $130,000.00. The insurance company placed the money in a blocked account until my daughter turns 18. She will be 18 in September of 20016. My question is: is the principle amount ($130,000) of the life insurance policy taxable? Also the insurance company sent a 1099-int form for 2015 in the amount of $27,602.43, the interest was paid to the blocked account. How do we handle this as she has no access to the account and will incur a tax debt on the $27K.
Submitted: 6 months ago.
Category: Tax
Expert:  Richard replied 6 months ago.
Good afternoon Frances. My name is ***** ***** I look forward to helping you. First, the principal amount of the policy is NOT taxable. Your daughter falls within the general rule that if she receives the proceeds under a life insurance contract as a beneficiary due to the death of the insured person, the benefits are not includable in gross income and do not have to be reported. (,-Dividends,-Other-Types-of-Income/Life-Insurance-&-Disability-Insurance-Proceeds/Life-Insurance-&-Disability-Insurance-Proceeds) . The interest is taxable since it has been paid to the account for her benefit. Although she doesn't have access to the funds until she is 18, the insurance company should release funds for her benefit to pay the taxes on the interest taxable to her. Thank you so much for allowing me to help you with your questions. I have done my best to provide information which fully addresses your question. If you have any follow up questions, please ask! If I have fully answered your question(s) to your satisfaction, I would appreciate you rating my service as OK, Good or Excellent (hopefully Good or Excellent). Otherwise, I receive no credit for assisting you today. I thank you in advance for taking the time to provide me a positive rating!

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