Foreign Life Insurance Proceeds to US Citizens

[shabacha]

My husband received proceeds from foreign life insurance upon the passing of his mother. He is a US citizen. He never owned the policy. He received the payout that was transferred to his bank account in Europe. No trust was or is involved. No other financial inheritance was received. Is form 3520 required?   Thank you.

[MinhT1]

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.

Please read this IRS document for more information.

Form 3520 is not necessary.

[shabacha]

So the provenance of the proceeds from another country do not matter then.  Thank you.

[MinhT1]

Receiving life insurance proceeds abroad does not necessitate form 3520.

However, depending on the amount of financial assets your husband now holds overseas, he may be required to file form 8938. And also with foreign bank accounts, he is required to file an FBAR,

Please read this IRS document for more information.

[anders650]

Is this really correct? Wouldn't it raise questions as to where the new money in the foreign bank account came from?

If we assume that the foreign life insurance was owned by a foreign person / entity, shouldn't the foreign life insurance death benefit be reported on 3520 as a Bequest from a foreign person?

What if the foreign life insurance was owned by a US Person? 

What if part of the foreign life insurance proceeds are Bonus payment (in addition to the Death benefit)?

[SusanY1]

If a US person owns the foreign life insurance policy, there are reporting requirements during the years of ownerships, as many foreign policies are considered investment vehicles (and often Passive Foreign Investment Companies or "PFICs") which requires filing Form 8621.

However, if the US person is simply the contractually named beneficiary of the policy, no special reporting is required, including no requirement to file Form 3520.  Insurance proceeds are neither gifts/bequests nor distributions from trusts unless the policy is considered "non-compliant"  You may need to consider consulting with a professional near you with expertise in that subject matter if you're not sure. 

Bonus payments paid to the beneficiary at death of the insured are treated as life insurance proceeds.  Bonus payments made to the owner while the insured is still alive are income. 

Keep your documents showing where the funds came from with your tax returns and other important records in case of an inquiry regarding the source of funds deposited into the foreign bank account, but that sort of inquiry is not a common occurrence. 

If you're more comfortable filing the form rather than leaving any room for questions, you may certainly do so.  If that is the case, I would use the section of the form for bequests and not distributions from a trust.  This is Part IV, Line 54, on page 6 of the form. 

@anders650