Listen to Lawrence…Is my life insurance taxable?

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Dear clients and friends,

Here is another one of your questions and my response:

CLIENT QUESTION

Is my life insurance taxable?

MY RESPONSE

People often overlook their life insurance when they do their estate planning…..but this could be a big mistake. While life insurance proceeds are generally not subject to income tax, affluent clients need to focus on the fact that the death benefit of their life insurance (not the cash value) is includable in their estate for estate tax purposes. I am defining affluent here as any client whose estate, including the death benefit of their life insurance, exceeds the New York estate tax exemption this year of $5.85 million.

To avoid this problem, we often transfer policy ownership to the children or to an Irrevocable Life Insurance Trust (ILIT); after 3 years the policy proceeds will be out of your taxable estate.

Less affluent clients do not have tax problems with their life insurance, but they may have Medicaid problems. I will discuss this in my next LISTEN TO LAWRENCE email. WOW!….WHAT A CLIFFHANGER!

I hope this helps! Please forward this article to your friends and relatives.

As always, please send me your questions. If you are thinking about it, others are probably too, so my answers will no doubt help you and many others.

Let’s stay connected.

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Stay safe!