Taxes: a summary

Tax information and responsibilities for the Family Adjustment, Family Income and Contributory Group Life Insurance Plans

Your beneficiaries should be aware of tax responsibilities they might have regarding benefits paid to them. Determining federal income and estate tax liabilities can be complex.

FAMILY INCOME INSURANCE proceeds are potentially subject to federal estate tax.  The ability to select the death benefit alternative may be viewed by the IRS as subjecting this previously excludable benefit to estate taxation. The interest portion of your beneficiary's monthly installment will be subject to federal income tax.

FAMILY ADJUSTMENT INSURANCE proceeds typically are not subject to federal income tax when paid in a single lump sum. However, selection of an optional mode of settlement may generate an income tax liability. These proceeds are subject to federal estate tax unless you fully assign ownership of your coverage to another party at least three years before your death.  Such assignment may have gift tax implications.

FAMILY INCOME and FAMILY ADJUSTMENT DEATH BENEFITS are subject to federal estate taxes and to income taxes when received by a beneficiary.

An exception to the rules above is that if your spouse receives death benefits or insurance proceeds from your estate, or if you assign insurance coverage to your spouse, federal estate or gift tax would generally not be applicable because of the unlimited marital deduction.

CONTRIBUTORY GROUP LIFE INSURANCE proceeds typically are not subject to federal income tax when paid in a single lump sum. However, selection of an optional mode of settlement may generate an income tax liability. These proceeds are subject to federal estate tax unless you fully assign ownership of your coverage to another party at least three years before your death. Such assignment may have gift tax implications.

The tax summaries in this guide are general overviews of current federal income and estate tax law. State and local taxes have not been discussed. Tax laws are complex and subject to change. They contain many conditions and exceptions that have not been included in this guide You should consider obtaining professional tax counsel on how survivor benefits may be taxed on the choices you make.