Q. I transferred ownership of my life insurance policy to my daughter. She is, along with another daughter and my son, beneficiary of the policy. Does this then make her liable for taxes on her part of the proceeds of the life insurance policy?
— Dad
A. The tax treatment of life insurance can get tricky.
The transfer-for-value rule says that if a life insurance policy is transferred for something of value, a portion of the death benefit is subject to income tax, said Ed Gaelick, a Chartered Life Underwriter and Chartered Financial Consultant with PSI Consultants in Glen Rock.
He said there are some exceptions, such as when a policy is transferred to the insured, a partner of the insured or to a company where the insured is an officer or stockholder.
In those cases, the policy does not lose its income tax-free status.
In your example, you transferred ownership to your daughter.
“Even if there was no material value paid, when transferring your life insurance policy to her, a…
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