Sharon transfers to Russ a life insurance policy with a cash surrender value of $27,000 and...
Sharon transfers to Russ a life insurance policy with a cash surrender value of $27,000 and a face value of $100,000 in exchange for real estate. Russ continues to pay the premiums on the policy until Sharon dies 7 years later. At that time, Russ has paid $12,000 in premiums, and he collects the $100,000 face value. How much of the proceeds, if any, is taxable to Russ? $ Why? Since the policy was transferred for valuable consideration, the proceeds
Homework Answers
Answer:
Computation of taxable proceeds:
Proceeds from the policy = $100,000
less: Policy cash value = $27,000
less: Premium paid by Russ = $12,000
Taxable Proceeds = $61,000
Since the policy was transferred for valuable consideration, the proceeds are taxable to the extent that they exceed the sum of the cash value at the time of transfer plus the premiums paid.
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