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Can My Mom Give Away Part of a Life Insurance Settlement?

Question: My father passed away and had a $150,000 life insurance policy that he left to my mother. She would like to give me and my brother each $50,000. What are the tax implications for each of us if she gives us part of the inheritance?

Answer: We’re sorry for your loss, but your father was wise to provide for his family with a life insurance policy. The death benefit from an individually-owned life insurance policy is typically tax free, says James R. Allen Jr., director of MetLife Investors Wealth Advisory Group. That means beneficiaries like your mother won’t have to pay federal or state taxes on the benefit.

As to whether your mother can share some of that settlement with you and your brother without adverse tax implications, the short answer is Yes. Anyone, including your mother, can give a cash gift each year of up to $13,000 without any tax consequences, says Bill Fleming, managing director at the PwC Private Company Services Group. The next $37,000 would be applied against her lifetime gift-and-estate tax exemption – the amount of money a person can give away or leave to heirs in a lifetime before he owes taxes on it. The exemption is currently $5 million for individual givers, $10 million for married couples.  (Without Congressional action that exemption is scheduled to fall to $1 million for individuals and $2 million for married couples in 2013.) If mom has already passed those thresholds, she – not you – would be responsible for the taxes on your gift, which has a top rate of 35%. Either way, your mother should keep track of the amount she gives and file a gift-tax return by the April filing date.

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    • If car insurance were like helath insurance, I would get it through my job, I wouldn’t be allowed to buy from out of state companies, and I’d have to buy a policy that covers outlandish things like rims and paintjobs also routine maintenance like gas and oil changes.(Health insurance is required to cover routine office visits, maintenance like pap smears, and outlandish things like sex changes and fertility treatments)And WHO puts all these restrictions on helath insurance? THe FEDERAL GOVERNMENT!SO they’re fixing a problem they created in the first place.Why not let the free market handle helath care the way it handles car insurance, home insurance, and all other types of insurance just FINE!.

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