Taxes after transfer of life insurance ownership

[tbartman]

My parents bought a single-premium, whole-life policy on me when I was a child. They paid $3000. Now that I'm an adult, they want to transfer ownership to me. The cash-out value of the policy is ~$14,000, and I plan on cashing it out immediately.

We know that there are no issues with gift taxes or reporting, because $14,000 is below the annual gift limit.

However, won't somebody have to pay tax on the ~$11,000 that the cash value increased? Who will that be? How will they know (will one of us get some form from the insurance company?)  I have searched the web extensively, and I only see information about taxes on the death benefit if it's paid, not on surrendering the policy.

[DoninGA]

Was the life insurance policy paid out to you?  If not then there is nothing to report on your tax return.

[tbartman]

Sorry, I was editing my post - look again at the real question. Thanks!

[Critter-3]

YOU will cash in the policy and you are the one who pays the taxes on the earnings ... ask the plan administrator how much will be taxable and reported on the 1099-R.