do you have to pay a gift tax on a life insurance policy when I disperse some of the money to my siblings?

There is no gift tax. You are allowed to gift $13,000 per person per year to as many people as you want with no gift tax consequences.

If the amount is over $13,000, there is still no gift tax because in 2011 and 2012 the maximum lifetime gift tax exemption is $5,000,000. If your gift is larger than $13,000 you need to fill our form 709 and send it to the IRS. There will be no gift tax, but your lifetime exemption will be reduced by the amount of the gift over $13,000 to each of the siblings.

Apparently no one on this site understands the gift tax exemption. THERE IS NO GIFT TAX ON THE FIRST FIVE MILLION DOLLARS OF GIFTS. YOU JUST HAVE TO FILL OUT FORM 709 FOR ANY GIFT OVER $13,000. IT IS NOT THE $5 MILLION ESTATE TAX EXCLUSION, IT IS THE $5 MILLION GIFT TAX EXEMPTION. READ THE RULES BEFORE YOU MAKE UNEDUCATED STATEMENTS.

http://www.reuters.com/article/2011/02/28/us-tax-g...

http://turbotax.intuit.com/tax-tools/tax-tips/Tax-...

If you are the sole beneficiary of the policy and then after receiving payment decide with out an estate being formed to share the benefits then what you give is subject to your states gifting tax’s. However if you were the executer of an estate which received the payout and the estate was split evenly per his living request then it would not be taxed, but the estate would be subject to legal fees and depending on what other assets were put into the estate some taxes.

Sorry for your loss.

Good luck settling his affairs.

That money is now yours and what you do with it is your decision. If you choose to gift it, it would be taxed above the current $13,000 tax free gift limit. The source of the funds is irrelevant in this case.

I believe that amounts under $13,000 are not subject to the gift tax , but check with your finanacial advisor to be sure .

If you are the beneficiary, that money is YOURS. You're not paying gift tax on the life insurance - you're paying gift tax on YOUR money that you give to the sibs.

So yes. YOU will be paying gift tax.

There IS gift tax if it's over $13,000 unless you use your unified credit. Consult your financial advisor.