Does Having a Life Insurance Policy Expose My Estate to Estate Tax?
If you are the primary breadwinner in your family and have purchased a life insurance policy to provide for your loved ones in the event of your untimely demise, you may be wondering whether the proceeds from that policy could expose your estate to estate taxes. Depending on the policy, these proceeds can range from six (6) to seven (7) digits. While you might consider higher coverage beneficial for your beneficiaries, it’s important to know whether it could impact your estate tax liability.
The answer is, “it depends,” but likely yes.
Generally, if you are both the insured and the owner of the life insurance policy, or if you hold “incidents of ownership,” the life insurance proceeds will be included in your gross estate for estate tax calculations upon your death. This can seem counterintuitive, as you won’t benefit from the proceeds during your lifetime, yet they may still affect your estate tax liability under the aforementioned conditions.
Currently, the Washington state estate tax exemption amount is $2,193,000. If your life insurance proceeds reach seven (7) digits, the policy alone could consume a significant portion, or even all, of the exemption amount. Many people overlook the impact of life insurance proceeds during estate planning, leading to unexpected tax liabilities.
To learn more about Does Having a Life Insurance Policy Expose My Estate to Estate Tax?, please contact Beresford Booth at info@beresfordlaw.com or by phone at (425) 776-4100