Attorney Melanie Farr explains a recent tax court decision dealing with life insurance proceeds
Posted by: Melanie Farr
February 15, 2011
Topic: Estate Planning
Haller & Colvin attorney Melanie L. Farr explains a recent tax court decision.
On February 8, the Indiana Tax Court issued an opinion regarding the taxation of annuity benefits transferred as a result of death. The Indiana Department of Revenue, Inheritance Tax Division, appealed a probate court's ruling that an estate was not obligated to pay inheritance tax on death benefits paid to the deceased's brother from an annuity contract. The Department had sought an order from the probate court for the estate to file a return and remit tax on the transfer to decedent's brother. The probate court found that the brother was a transferee of life insurance and no tax was due. The Department appealed the probate court's ruling to the Tax Court. In reviewing the transfer of certain death benefits, the Tax Court found that life insurance proceeds are exempt from taxation as long as the benefits are not distributed to the estate. Likewise, annuity payments are exempt from taxation but only if two requirements are met: (1) the annuity contract was entered into after March 3, 1931, and (2) the annuity was payable to the decedent, or the decedent possessed the right to receive the payment either for his life, for any period not ascertainable without reference to his death, or for any period which does not in fact end before his death.
The Tax Court found that the evidence did not support the conclusion that the checks were life insurance proceeds. The checks clearly stated that they were "proceeds from [an] annuity contract." The Tax Court remanded the case back to the probate court with instructions to order the estate to produce a copy of the contracts at issue and determine whether the estate was required to file a return and remit inheritance tax. The full opinion can be found in Indiana Department of State Revenue, Inheritance Tax Division v. In the Matter of the Estate of Deloras J. Biddle, Deceased, Case No. 49T10-1007-TA-35.
The contents of this blog post are intended for general information purposes only and should not be construed as legal advice.
