Tax Facts

84 / Are the proceeds from life insurance taken out to pay an insured’s death taxes includable in the insured’s estate?

Yes.

The proceeds are includable in the insured’s gross estate if the beneficiary has a legally binding obligation to use them to pay the insured’s death taxes.1 For powers that may be given to a trustee, see Q 182.

Planning Point: Proceeds should not be includable in the gross estate merely because the beneficiary lends the proceeds to the estate, or uses the proceeds to buy assets from the estate. Liquidity can be provided to an estate in this manner.

1.     Treas. Reg. § 20.2042-1(b)(1).

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