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.