Is life insurance considered part of a decedent's estate and are the proceeds taxable?

There are several factors to consider when determining if life insurance is part of a decedent's probate estate and whether the proceeds are taxable in the US. Taxation of estates is an extremely complex area of law. You should always consult with an attorney and tax expert for advice regarding tax issues.

Generally and briefly:

If the decedent owned the policy on his/her own life, the insurance proceeds will be a part of the taxable estate (gross estate). However, most estates no longer reach the threshold of taxability regarding the federal estate tax. (If the policy was owned by someone other than the decedent, the insurance proceeds will not be part of the taxable estate.)

If the decedent named a beneficiary, the proceeds will be paid directly to the beneficiary, bypassing probate (but remember as stated above the proceeds are considered part of the taxable estate). The proceeds are generally not taxable to the beneficiary.

If the decedent did not name a beneficiary, the proceeds will become part of the estate and as such, vulnerable to creditors. The proceeds will be distributed according to the terms of the will or by the laws of intestacy if there is no will.
There are several factors to consider when determining if life insurance is part of a decedent's probate estate and whether the proceeds are taxable in the US. Taxation of estates is an extremely complex area of law. You should always consult with an attorney and tax expert for advice regarding tax issues.

Generally and briefly:

If the decedent owned the policy on his/her own life, the insurance proceeds will be a part of the taxable estate (gross estate). However, most estates no longer reach the threshold of taxability regarding the federal estate tax. (If the policy was owned by someone other than the decedent, the insurance proceeds will not be part of the taxable estate.)

If the decedent named a beneficiary, the proceeds will be paid directly to the beneficiary, bypassing probate (but remember as stated above the proceeds are considered part of the taxable estate). The proceeds are generally not taxable to the beneficiary.

If the decedent did not name a beneficiary, the proceeds will become part of the estate and as such, vulnerable to creditors. The proceeds will be distributed according to the terms of the will or by the laws of intestacy if there is no will.