My mother in law is the benficiary for my late husband's life insurance policy?

Question

however, we were only married four months and we never changed the beneficiaries on each of our policies. She is going to receive the check for $150,000, so that it will not go into his estate (there was no will) and gift it to me. Will she pay gift tax on it?   

I found this on the internet:  "Dear Liza: My brother gave me two checks totaling $200,000 in 2012 as a gift.  Who pays the tax on that? You have a generous brother! And, in the no good deed goes unpunished department,  it is the DONOR of the gift (your brother) who is responsible for reporting the gift and paying the tax due, if any. You, the DONEE, receive the gift free of tax because gifts are not ordinary income under the income tax rules.  In 2012, gifts under $5.12 million dollars are not subject to gift tax, but any gift over $13,000 must be reported on a gift tax return by April, 2013.  Your brother must file that return, which tells the IRS that he made you a gift of $200,000.  Assuming he hasn’t made other gifts that exceed that $5.12 million, though, no tax will be due.  Instead, by reporting the gift, your brother has used up some of his lifetime gift tax credit–the tax that would otherwise be due on a gift of $200,000."

I believe the amount has been increased to $14,000 for 2013 and the total lifetime gift tax is $5.2 million.  Since I am the daughter in law, am I considered family?

Bobbie · Accepted Answer

Sure does sound like you have it figured out very good OK.
Hope that you find the above enclosed information useful. 0913/2013

joetaxpayer · Answer

Using a bit of her lifetime exclusion is fine. It's a small enough amount (compared to $5.25M).

If she already requested the check, that's the way to go. If not, she can ask the insurance company if she can 'disclaim' the money. You are next in line as a beneficiary for your husband's estate (I'm assuming no kids yet) and this would avoid even the gift tax paperwork.

ninasgramma · Answer

Unless your MIL has millions, she will not pay any tax by giving you the insurance benefits.

However, there may be issues here related to your MIL's estate, her eligibility for Medicaid in the present or future, etc.  Or, if your MIL is wealthy, this could effect your estate taxes when she dies.  So, since this is a lot of money, your MIL and maybe you can together consult with an estate attorney as to how to transact this.  It may be that your MIL can disclaim the insurance and you can get it, without any gift taking place.

The particulars of your situation depend on state law as well.  Consulting with a local estate expert would be the thing to do.

Anonymous · Answer

You are referring to the federal gift tax.  In 2013, one may give 14,000 to any one recipient without tax and without reporting the gift to the IRS.

If one gives more than $14,000 to any one recipient during the calendar year, as is the case with your mother-in-law's anticipated gift, she will be required to file a gift tax return with the IRS for calendar year 2013 (assuming the gift is made this year).

The gift tax return will be due April 15, 2014.  The lifetime exclusion from gift/estate taxes is $5.25 million, Therefore, it is unlikely that your mother-in-law would owe any tax, but she is still required to file the gift tax return to report the gift if it is over $14,000.

For federal gift tax purposes, it is not important whether you are family or not.  Only spouses and charities are exempt from gift and estate tax.  All others, including family, are potentially subject to the tax.

tro · Answer

the beneficiary of the life insurance is not taxed on the proceeds
what she does with it is entirely up to her, if she give is to you, the amount could be retained in her 'estate' and eventually be taxable to her but as a recipient you are not taxed on the gift

Judy · Answer

Doesn't matter if you're family or not.  She has to file a gift tax return, but probably won't owe tax on the gift.

Steve D · Answer

Doesn't have to be family.  That clause applies to ALL gifts - she could give it to the homeless person down the road and still claim the lifetime gift exemption.

Slickterp · Answer

Possibly for her, the recipient of a gift never pays tax.  You are family (the gifts don't actually have to go to family).

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My mother in law is the benficiary for my late husband's life insurance policy?

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