Steve_

It covers everything that is part of your estate, by definition. It's an estate tax.

Pulaski

What if you nominate a beneficiary for your life insurance? Does that bypass your estate?

robin1234

Surely a life insurance payout to a beneficiary is not part of the deceased person's estate..?

Pulaski

That is true in the UK if you nominate beneficiaries, otherwise it goes into your estate.

robin1234

True no doubt but I always assumed the main reason for life insurance was that it went to your designated beneficiaries after your death, typically spouse as beneficiary with children as contingent beneficiaries. So I assume most people do designate beneficiaries.

Steve_

Well without knowing the exact details it's hard to say obviously, but simply put, if it's part of the estate it's subject to estate tax, if not then it's not.

In the U.S. you have the IRD rules so the beneficiary would be taxed on income from the estate. Although life insurance is generally exempt, depending on various factors.

But the situation described is odd, because she's the spouse - who typically wouldn't be taxed on the transfer of an estate, but she has been because of some stupid NJ law which mirrors an obscure federal law which applies to far fewer people, because of the fantastically higher federal limit on estate tax.

So it appears either way she gets taxed, either on the transfer of the estate or the income from the estate and I'm not sure how NJ sees the life insurance. (Although in this situation it could be taxed twice because I'm not sure if NJ would allow the tax credit to the estate on the IRD tax being paid by the beneficiary).

Like I said, she needs to go to court over it, I would. I've always thought that Federal law was on weak ground and since US v. Windsor, weaker ground still. If gay married couples can transfer estates tax-free because of the 14th Amendment, then I fail to see why the same logic doesn't apply to long-standing residents of the US.

The case law is pretty substantial and the amount in question is also, so it's worth the effort of going to court imo.

Steve_

In fact thinking about it, the first thing to do would be to see if the AG has an opinion on the NJ law in the light of US v. Windsor and get a lawyer to draft the letter.