Paul Sanchez
Life insurance is a complex area of tax, and it's important to understand the role that different forms play. For example, IRS Form 712 is used to value life insurance on gift tax and estate tax returns. This form is critical for individuals planning to bequeath a significant estate or change the ownership of an existing life insurance policy outside of their taxable estate. Form 712 should be included with Form 709 Gift Tax Return and Form 706 Estate Tax Return. Other forms related to life insurance include Form 1099-R and Form 1099-INT, which are sent when distributions or other policy activity occurs that is reportable to the IRS or when interest is earned or received, respectively.
| Characteristics | Values |
|---|---|
| Form number | 712 |
| Form name | Life Insurance Statement |
| When to use | When valuing life insurance on gift tax and estate tax returns |
| Who uses it | Individuals planning to bequeath a significant estate and who own life insurance outside their taxable estate |
| When to request it | As early in the process as possible |
| Who signs it | An officer of the life insurance company |
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IRS Form 712
Form 712 should be included with any Form 709 Gift Tax Return related to certain policy transfers during the insured’s lifetime to establish the value of the gift. It should also be included with the Form 706 Estate Tax Return after death for all policies insuring the life of the decedent. Estates that need to file an estate tax return will need to ask the insurance company to provide a Form 712 for each policy insuring the decedent. The form isn’t automatically sent out to the beneficiary/estate for every policy since most estates fall within the exemption amount and aren’t required to file a Form 706 U.S. Estate Tax Return.
Form 712 reports the value of a policy in order to prepare the estate tax forms. The value of all policies on the decedent’s life must be reported on the estate tax return on Schedule D, regardless of whether they were owned inside the estate or not. A gift of a life insurance policy to a trust supported by a Form 712 can eliminate estate taxes on the death benefit.
When a life insurance policy is gifted to a trust, the ownership of the policy is shifted outside of the taxable estate. Taxpayers need to understand that the request for the form should be made as early in the process as possible to allow time for the form to be prepared and signed by an officer of the life insurance company.
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Estate tax returns
Life insurance proceeds provide an income tax-free payment to beneficiaries but can complicate an estate tax return. A gift of a life insurance policy to a trust supported by a Form 712 can eliminate estate taxes on the death benefit.
Form 712 should be included with any Form 709 Gift Tax Return related to certain policy transfers during the insured’s lifetime to establish the value of the gift. It should also be included with the Form 706 Estate Tax Return after death for all policies insuring the life of the decedent. Estates that need to file an estate tax return will need to ask the insurance company to provide a Form 712 for each policy insuring the decedent. The form isn’t automatically sent out to the beneficiary/estate for every policy since most estates fall within the exemption amount and aren’t required to file a Form 706 U.S. Estate Tax Return. Form 712 reports the value of a policy in order to prepare the estate tax forms. The value of all policies on the decedent’s life must be reported on the estate tax return on Schedule D, regardless of whether they were owned inside the estate or not.
Form 1099-R is sent when distributions or other policy activity occurs that is reportable to the IRS. Form 1099-INT is sent when you earn or receive interest that is reportable to the IRS. Forms 1099-R and 1099-INT will be available on MyNYL or mailed to you by January 31st each year.
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Gift tax returns
Life insurance proceeds are usually tax-free for beneficiaries, but they can complicate an estate tax return. A gift of a life insurance policy to a trust supported by a Form 712 can eliminate estate taxes on the death benefit. This form is used to establish the value of the gift and must be included with any Form 709 Gift Tax Return related to certain policy transfers during the insured's lifetime. It should also be included with the Form 706 Estate Tax Return after death for all policies insuring the life of the decedent.
Form 712 isn't automatically sent out to the beneficiary or estate for every policy. This is because most estates fall within the exemption amount and aren't required to file a Form 706 U.S. Estate Tax Return. However, estates that need to file an estate tax return will need to ask the insurance company to provide a Form 712 for each policy insuring the decedent. This form reports the value of a policy in order to prepare the estate tax forms. The value of all policies on the decedent's life must be reported on the estate tax return on Schedule D, regardless of whether they were owned inside the estate or not.
When a life insurance policy is gifted to a trust, the ownership of the policy is shifted outside of the taxable estate. This form can't be prepared quickly by the insurance carrier, so taxpayers need to understand that the request for the form should be made as early in the process as possible. It's also important to keep in mind that each person's tax situation is unique, so it's always best to review your state, local and federal tax codes and call your legal or tax advisor for more in-depth information.
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Form 1099-R
Life insurance proceeds are usually tax-free for beneficiaries, but they can complicate an estate tax return. Form 712 is used to value a life insurance policy when it is gifted to a trust or when the ownership of an existing life insurance policy is changed. This form is critical for individuals planning to bequeath a significant estate and who own life insurance outside their taxable estate. Form 712 should be included with Form 709 Gift Tax Return and Form 706 Estate Tax Return. After the death of the insured, estates that need to file an estate tax return will need to ask the insurance company to provide a Form 712 for each policy insuring the decedent. The value of all policies on the decedent's life must be reported on the estate tax return on Schedule D.
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Form 1099-INT
If you receive any form of interest income during the tax year, you may receive a Form 1099-INT from the payer. This form will report the amount of interest you earned and any taxes that were withheld. It is important to note that not all interest income is reportable on Form 1099-INT. Generally, only interest income that exceeds a certain threshold, typically $10 or more, will be reported.
If you receive a Form 1099-INT, you will need to include the information on your tax return. This form will help you calculate your total income for the year, which will determine your tax liability. It is important to accurately report all sources of income, including interest income, to ensure compliance with tax laws and avoid penalties.
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Frequently asked questions
Form 712 is used for valuing life insurance on gift tax and estate tax returns. Form 1099-R is sent when distributions or other policy activity occurs that is reportable to the IRS, and Form 1099-INT is sent when you earn or receive interest that is reportable to the IRS.
Form 712 is an IRS form that contains critical information for individuals who are planning to bequeath a significant estate and who own life insurance outside their taxable estate, or when changing the ownership of an existing life insurance policy outside of their taxable estate.
Form 712 should be included with any Form 709 Gift Tax Return related to certain policy transfers during the insured’s lifetime to establish the value of the gift. It should also be included with the Form 706 Estate Tax Return after death for all policies insuring the life of the decedent.
Estates that need to file an estate tax return will need to ask the insurance company to provide a Form 712 for each policy insuring the decedent. The form isn’t automatically sent out to the beneficiary/estate for every policy since most estates fall within the exemption amount and aren’t required to file a Form 706 U.S. Estate Tax Return.
Taxpayers need to understand that the request for the form should be made as early in the process as possible to allow time for the form to be prepared and signed by an officer of the life insurance company.
