Law Offices of Frye & Vazquez, P.L.
Call Today. 305-508-5749 | 877-421-5473

Avoiding estate taxes after a life insurance payout

Many in Miami may be counseled on the wisdom of taking out a life insurance policy to help ease the financial burden their loved ones may feel when they die. One of the more attractive aspects of a life insurance policy are the perceived tax advantages it offers, specifically that beneficiaries do not have pay income tax in its proceeds. Yet while that is true, many do not consider that a life insurance payout may suddenly force their loved ones to become subject to estate taxes.

Section 2042 of the Internal Revenue Code (as shared by the Legal Information Institute of the Cornell University Law School) outlines the scenarios in which a life insurance payout may be counted towards the gross value of one’s estate. These include cases where the proceeds of one’s insurance will be paid to his or her estate, or if one either owns the policy or has retained certain “incidents or ownership” over it. For the purposes of this law, “incidents of ownership” are defined as being the right to:

  •          Cancel the policy
  •          Add or remove beneficiaries
  •          Borrow against the cash value of the policy

When the aforementioned guidelines apply to one’s policy, then his or her beneficiaries may be forced to pay the estate tax if, after adding in the value of the payout, the total value of his or her estate exceeds the tax threshold. According to Forbes Magazine, that value for 2017 is $5.49 million for individuals, and $10.89 million for married couples.

Estate taxes may still be avoided even with the addition of a life insurance payout if one plans accordingly. He or she can create an irrevocable life insurance trust, or can choose to have a beneficiary (other than his or her spouse) own and pay premiums on the policy. 

No Comments

Leave a comment
Comment Information

What Our Clients Are Saying

  • I have known and worked with Austin Frye and his team since 2008. In that time he has helped serve both my business and personal legal planning needs. From guidance on reviewing and keeping shareholder and state documentation up to date... - Robert
  • It is difficult enough to cope with the emotional challenges of closing a parent's estate, and when you are also faced with the issue of your parents having insufficient documentation, and being remote from your siblings… - Zara L.
  • Austin Frye provided legal services to my father while alive and to his estate after his death; when showing the EP docs his firm prepared to other professionals (lawyers, financial advisors, accountants)… - Mark S
  • I've been a client of Austin Frye's for over 10 years. In that time, he's handled my estate/trust planning and asset protection as well as complicated business deals. - Leslie
  • Mr. Frye recently set up a complicated special needs trust for my son and, as usual, did a great job explaining it and in putting our minds at ease about our son's future well-being. - Dr. Howard
  • Massachusetts Bar Association
  • The Florida Bar 1950
  • CFP
  • Florida Bar Elder Law Member
  • Academy Of Florida Elder Law Attorneys
  • Florida bar Business law Member
  • NAELA National Academy of Elder Law Attorneys, Inc.
Email Us For a Response

Contact Us For Personal Attention To Your Legal Matter

Bold labels are required.

Contact Information

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.


Privacy Policy

Office Location

Get In Touch With Us
20900 W. Dixie Highway
Miami, FL 33180

Toll Free: 877-421-5473
Phone: 305-508-5749
Map & Directions