Do I have to pay tax on accelerated death benefits and
viatical settlements?
Often the terminally ill need money to pay for medical expenses and living costs. Due
to the high cost of medical care many insurance companies have issued policies with
accelerated death benefits. Accelerated death benefits are monies paid to the terminally
ill for surrendering their policies to their life insurance companies.
A policy can
also be sold to a viatical settlement company. Viatical settlement companies purchase the
policies either for themselves or for investors.
The
accelerated death benefit or viatical settlement proceeds received by the terminally ill are generally tax
free so you do not report them on your tax return. However, if the
policy is sold to a viatical settlement company or the accelerated death benefits are paid
by an insurance company under a long term care rider, and the
accelerated death benefits are used to pay for
long term care, and the proceeds exceed the IRS per diem limit and the actual costs of long
term care, the excess is taxable on your tax return.
Related tax
information about accelerated death benefits and viatical
settlements
IRS publications about accelerated death benefits and viatical
settlements: See IRS Publication 17,Your
Federal Income Tax.
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For further information regarding IRS
rules and regulations and your particular tax or IRS situation you should
consult with a Certified Public Accountant, Enrolled Agent, Attorney, or
other tax advisor.
Your
Federal Income Tax.
