2. Three People On A Policy
The beneficiary of a properly structured life insurance policy will generally receive the death benefit income and gift tax-free. However, if your policy has 3 people - one designated as the owner, one designated as the insured, and one designated as the beneficiary of the life insurance policy, policy proceeds are subject to gift taxation - if the insured person dies, the proceeds are considered to be a gift from the owner to the beneficiary. Make sure in your policy that either the insured and owner are the same individual; or the owner and beneficiary are identical.
In our next blog post, we will discuss the third mistake - business as the owner.