Life insurance death benefits paid to a beneficiary are generally not subject to federal or California income tax, and California has no estate tax or inheritance tax.
Exceptions include interest earned if the benefit is paid in installments, and policies that were transferred for value. Very large estates may owe federal estate tax, since life insurance you own counts toward your taxable estate. Some families use an irrevocable life insurance trust (ILIT) to help avoid that.
For larger estates, coordinate with a California estate planning attorney or CPA.
Questions about your own policy? Elye Insurance in Mission Viejo helps homeowners and drivers across California and Nevada compare options from multiple carriers.
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