Hello,
Unfortunately my dad passed away unexpectedly last year and I just received his life insurance policy payout. I’m splitting the money three ways with my two brothers. The payments will be over the annual exclusion threshold of $19k.
I was just planning on going to the bank to deposit it and send each of my brothers their portions. From what I’ve learned in my limited research the life insurance policy itself isn’t taxable but I would have to file Form 709 next year for the money I’m gifting.
Am I missing anything?
Gifting over the annual exclusion to my brothers, what to consider?
byu/possums101 inpersonalfinance
Posted by possums101
9 Comments
Nothing. It’s just a form. There are no monetary consequences.
How was the beneficiary named? You should make sure the benefit is handled properly and doesn’t eat into your lifetime exclusion if possible.
> the life insurance policy itself isn’t taxable
Yup.
> but I would have to file Form 709 next year for the money I’m gifting.
You can file it as soon as the 2026 version of Form 709 comes out.
But even if you forget, it’s not going to be a big deal.
You may be missing that the amount gifted over the exclusion is still not taxable this year. It needs to be reported because it counts against your “lifetime exemption” (currently around $13,000,000). Only after you’ve used that up does any gift / estate get taxed by the IRS. Very few people need to worry about gifts / estate getting taxed by the federal government. Your state (and possibly each brother’s if different) might have separate treatment around gifts. But in my experience most states follow the annual/lifetime thresholds from the IRS, so very likely you won’t owe any state tax either.
The annual exclusion is also $19k per *recipient*. So if you got a $50,000 insurance payout and want to give $16,666 to each brother, no reporting is needed because each separate person got under $19k from you.
Are either you or your brothers married? If so, gifting to/from a spouse would increase the threshold 2x or even 4x. Assuming you each have a spouse, your spouse could gift 19K to a brother, and you and your spouse could each gift 19K to your brother’s spouse, for a total of 76K.
No, that’s all you have to do. You will have no other issues unless your Estate ends up over $14 million (est.) when you die.
Sorry for your loss.
If these gifts take you over the estate tax exemption, you will pay gift tax. If your lifetime reported gifts plus your estate exceeds the estate tax exemption, estate tax will be paid before your heirs get anything.
Sure the estate tax exemption is $15M. It does not always have to be $15M; Congress could lower it.
Depending on the amount of each split of the life insurance proceeds, consider doing this with multiple gifts that are under the annual exemption.
You’re under no legal obligation to give your brothers any of it. You may want to ask yourself why your dad didn’t list them as beneficiaries as well.
You could distribute the money over multiple years to skip having to fill out the gift tax form.
Is there any chance you will give away or leave behind a large amount of money? The current lifetime exclusion is about $15 million. I’m assuming not but if there is a chance you will be in that range you may want to do a bit more planning now.