The cash surrender value of a life insurance policy is sometimes taxable (if the owner cashes it in while they are alive), but the death benefit to the beneficiary is never taxable.
(Having said that, I will describe an unusual situation that happened in my family. My father in law owned several small insurance policies that his widow didn't know about. When she finally found out, the company had converted the death benefit to company stock--I don't know how or why. When the widow sold the stock, there was a small capital gain because the stock had increased in value after his death, and that capital gain was taxable even though the main benefit was not. So there is always the possibility of an odd situation here or there. But in the main, a cash death benefit paid to the beneficiary after the policyholder's death is never taxable to the beneficiary.)
However, this transaction will be subject to the rules for Gift Tax. Even though it might not be intended as an actual gift (such as, the reason it is happening this way is that the person in Mexico is the real intended beneficiary but it was not possible to list them on the policy), the gift tax applies.
Gift tax is not actually owed unless the person's lifetime total of gifts given is more than $13 million, but if your wife gives gifts of more than $17,000 per person per year, she is required to file form 709 to report the gift, so the IRS can track it against her lifetime exemption limit. Turbotax does not support form 709 and it can't be e-filed, she will have to fill it out by hand and mail it in (or see a professional). It's separate from your regular tax return, not attached. The deadline for a gift made in 2023 is the same as the tax return deadline, April 15, 2024.
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