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Gibbon13
Returning Member

Capital life insurance

Over 20 years ago my mother took out a capital life insurance in her name in Germany with myself as beneficiary. She paid the annual premium. The insurance matured last year. I got a lump sum payment last year transferred from Germany. Do I have to pay tax on this money or is it considered a gift from my mother? If I have to pay tax how to I report it (which section)? 

8 Replies
MaryK1101
Expert Alumni

Capital life insurance

No, generally, life insurance proceeds you receive as a beneficiary due to the death of the insured person, aren't includable in gross income and you don't have to report them.

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Gibbon13
Returning Member

Capital life insurance

Thanks MaryK1101  for your answer. Just to clarify one point. My mother is still alive. The lump sum was paid because the insurance was linked to annual pension or lump sum payment at the maturation date.  Would this make a difference?

macuser_22
Level 15

Capital life insurance


@Gibbon13 wrote:

Thanks MaryK1101  for your answer. Just to clarify one point. My mother is still alive. The lump sum was paid because the insurance was linked to annual pension or lump sum payment at the maturation date.  Would this make a difference?


That does not add up.  A "benificuary" is only paid after the death of the account owner.   If the account owner is alive then the payment must go to the account owner.   Seems like a mistake was made.   The payer should be contacted.

 

Perhaps German law is different.

 

A beneficiary is the person or entity you name in a life insurance policy to receive the death benefit. You can name: One person. Two or more people.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
MaryK1101
Expert Alumni

Capital life insurance

A little bit- you, as the beneficiary, did not receive the funds as a result of her death (thank goodness).  Because it matured, it would have been income to your mother so she would be responsible for paying tax (if any) to Germany.  Your received it as a gift and do not have to pay tax on it. (unless it was over $100,000 in which case you would need to report on a Form 3520).

@Gibbon13

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Gibbon13
Returning Member

Capital life insurance

Thank you. It was  below $100 000.00. Sorry I have one more question, but I am always afraid of the IRS. I was always the planned beneficiary of the pension payment. Why would my mother have to pay tax? 

Gibbon13
Returning Member

Capital life insurance

Thanks for your input. It is not a mistake. Maybe it something special for Germany. It is a pension "insurance" (maybe roughly comparable to an American Roth IRA). My mother made the insurance contract in her name and also made the payments. But it was always stated in the contract from the beginning that I would receive the money at maturation even when I mother is still alive. It is now the question can I consider this as a gift because she made the payments or do I have to declare it on my tax? If I have to declare I could not find anything where I could put it. 

SundayInSalem
Level 6

Capital life insurance

It sounds like your question was misinterpreted. You said the policy matured. Generally the amount of money received from the surrender of a life insurance policy is taxable to the amount it exceeds the amount of premiums paid. Refer to Situation 1 in Rev. Rul. 2009-13.

 

If you received the proceeds directly then you would have to calculate whether the amount received exceeded the cost of premiums. If your mother received the proceeds and gave them to you it is a gift.

macuser_22
Level 15

Capital life insurance


@Gibbon13 wrote:

Thanks for your input. It is not a mistake. Maybe it something special for Germany. It is a pension "insurance" (maybe roughly comparable to an American Roth IRA). My mother made the insurance contract in her name and also made the payments. But it was always stated in the contract from the beginning that I would receive the money at maturation even when I mother is still alive. It is now the question can I consider this as a gift because she made the payments or do I have to declare it on my tax? If I have to declare I could not find anything where I could put it. 


You might need to consult with a tax professional or tax attorney that deals with international tax laws to get an opinion on that.   TurboTax software only deals with US tax law.  

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
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