Life insurance proceeds are not treated as income in respect of a decedent so are not subject to an income tax upon receipt by an estate or beneficiary, (just as, say, proceeds of a bank account are not treated as income); however, the Internal Revenue Code (26 USC 2042) specifically provides that the value of any life insurance proceeds payable to a decedent's estate or, if owned by the decedent, payable directly to a beneficiary, is subject to estate tax.
Not really, but the confusion between different "classes" or codes of taxable income is precisely the reason to remove some of them from our lives... permanently!
... specifically provides that the value of any life insurance proceeds payable to a decedent's estate or, if owned by the decedent, payable directly to a beneficiary, is subject to estate tax.
Which is why anyone who has anywhere close to $3M or more in assets at stake should know or have a tax / estate / trust lawyer who understands and can explain the difference between the "insured" and the "beneficiary" and the "owner" of the policy.
I didn't not want to make my post on this thread a treatise on the topic of life insurance in tax planning. Hope that post #112 makes it clear http://www.freerepublic.com/focus/news/2399567/posts?page=112#112 :
Yes, life insurance policy generally should not be “owned” by an insured or be a part of his taxable “estate”.