Question

Sharon transfers to Russ a life insurance policy with a cash surrender value of $48,800 and a face value of $146,400 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 $21,960 in premiums, and he collects the $146,400 face value. How much of the proceeds, if any, is taxable to Russ? Why? Since the policy was transferred for valuable consideration, the proceeds

Answer 1

Calculation of taxable proceeds:

Face value of policy = $146,400

Less: Cash Surrender value = $48,800

Less: Premium paid = $21,960

Taxable Proceeds = $75,640

Hence, the taxable Proceeds are $75,640.

Since the policy was transferred for valuable considerations, the proceeds taxable.