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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10149
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Does an estate need to file Form 1041?

Customer Question

I have an insurance policy that was paid to profit sharing plan. There is no Form 712. How is it handled for estate purposes and is it includable in separate filing? I have just the check from the insurance company to the profit sharing plan that was deposited in an estate account. Does an estate need to file a Form 1041?
Submitted: 15 days ago.
Category: Tax
Expert:  Lane replied 15 days ago.
you'll need to do a 1041. This is typically done as a tax planning strategy where the plan owns policy, and the insured has a named beneficiary on the plan. Every year, the insured plan participant pays income tax on the dollar value of the actual insurance protection – approximately equal to the term insurance cost. This is commonly called the “PS-58 cost”. The total of those costs down through the years is the participant’s “basis”. If he or she dies while a participant in the plan, his or her estate will pay income tax on the policy cash value minus the basis..
In other words, the policy cash value is treated like any other plan investment. The death benefit in excess of the cash va.
This is typically done to as a tax planning strategy where the plan owns policy, and the insured has a named beneficiary on the plan.
Every year, the insured plan participant pays income tax on the dollar value of the actual insurance protection -- approximately equal to the term insurance cost. This is commonly called the "PS-58 cost."
The total of those costs down through the years is the participant's "basis." If he or she dies while a participant in the plan, his or her estate will pay income tax on the policy cash value minus the basis.
In other words, the policy cash value is treated like any other plan investment. The death benefit in excess of the cash value is income-tax free.