Will the insurance money be taxed? 2 Answers as of September 07, 2010

The tax ramifications of life insurance can be very complex as you are learning. Proceeds paid by the insurer upon the death of the insured may not be included in gross income for federal and state tax income purposes however, they may be treated differently if they are included in the estate of your wife. I would recommend scheduling an appointment with a tax attorney and/or your CPA to obtain additional information concerning these matters.

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Generally, any funds received due to death are not taxable. Further, an estate less than $100,000 needs no probate. In addition, proceeds from a life insurance contract are outside the $100,000 limit. 2010 will be the only year that there would be no taxes due from any estate- no matter how large.