Can I legally split the benefits of a life insurance policy with two others with no tax implications?

1 answer | Last updated: Oct 02, 2016
A fellow caregiver asked...

My father listed me as the sole beneficiary on a life insurance policy.

I have two siblings that I want to split the benefit with.

Can I legally say I want to have them as equal beneficiaries so they each get an equal third of the benefit without tax implications to myself or them?

Would it be considered a "gift" from me to them and be subject to IRS gift restrictions. or would it just be considered an inheritance to each of us?


Expert Answers

Barbara Steinberg is the CEO and founder of BLS Eldercare Financial Solutions, which specializes in helping families pay for long-term care for their loved ones. A registered financial gerontologist, she speaks regularly on the topic of paying for long-term care and is a financial expert for Caring.com.

The owner of a life insurance policy names the beneficiaries. In your case, your father named you as sole beneficiary. You, the beneficiary, cannot specify or change who the beneficiaries are. If you want to share your inheritance with your siblings, you are free to do so. Yes, you are making a gift to each one of them. Depending on the size of the policy, you may not have any tax concerns. There are two levels of taxes that may apply. First is the federal estate tax. This year's exclusion is $5 million. So unless your father's estate, including life insurance proceeds, exceeds $5 million, there is no estate tax to pay. Even if there is estate tax due, it will be the same whether there is one beneficiary or three beneficiaries because it is based on the size of the estate. The other tax is inheritance tax at the state level. The proceeds of life insurance policies that a beneficiary receives are usually not subject to state inheritance tax. Check with your state to make sure this applies. If you decide to gift 2/3 of your inheritance to your two siblings, it is not likely that you will pay gift tax. The reason is that this year the gift tax exclusion is also $5 million. Only if your lifetime gifts add up to $5 million will the gift tax come into play.