Money Matters | State doesn’t tax life insurance proceeds

August 31, 2013 

Question: Does the family have to pay inheritance tax on life insurance proceeds that were paid to us when my father died?

Answer: Pennsylvania does not tax life insurance proceeds that are paid from the insurance company to a named beneficiary or to an estate. Usually, life insurance benefits are paid to an individual, and that payment is not taxable. If the proceeds are paid to a trust or to an estate, the proceeds are not taxable for inheritance tax. There is no income tax by the state or federal governments on those proceeds. Once the proceeds are owned by the beneficiary, then if that beneficiary dies, proceeds of insurance become taxable because they are no longer being paid directly from the insurance company to a beneficiary.

Question: When my father and his second wife are married, will his new wife have rights in my father’s assets that may affect his children upon his death?

Answer: The answer is yes.

If husband and wife marry and if they each bring assets to the marriage, then each of them automatically by law has certain rights in the assets of the other person. The right given by state law is designed to protect each of the parties from being disinherited by their new spouse. The amount that the new spouse will be entitled to by state law is determined in part by to whom the children were born. Thus if the children were born to both husband and wife, then the amount that the surviving spouse would receive is a certain percentage, and if the children were born to only the dying spouse, but not the surviving spouse, then the amount that the surviving spouse would receive would be less than in the other example.

Parties who are being married, and who wish to control how much each other may claim from the deceased spouse’s estate at the time of death, control such a situation by using a pre-marital agreement, which is a contract that states how upon death assets will be divided between husband and wife. The contract can control the husband’s assets, the wife’s assets and joint assets as well as debts.

Question: I was appointed as executrix of my mother’s estate and my brother is appointed as executor. My brother lives in California and I live locally. It will be difficult for both of us to sign checks for the estate as the administration takes place. What can we do to simplify matters?

Answer: One of the easiest ways to simplify matters is for your brother to simply appoint you as his agent under a power of attorney. The bank that you use has power of attorney cards, and it is possible that your brother can sign one of those cards allowing you to be his agent for purposes of only the bank account.

Another method is to appoint the attorney who is representing the estate as the agent under a power of attorney, which both you and your brother would sign.

James M. Rayback is a practicing lawyer with the State College firm of James M. Rayback, Inc.

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