Question

Jay and Ivana are husband and wife and live in Pennsylvania. Using joint funds, in 1990 they purchase an insurance policy on Jay's life and designate their daughter, Debby, as the beneficiary. The policy has a maturity value of $2,000,000. Jay dies first, and the insurance proceeds are paid to Debby. As for the proceeds,

a. Jay's taxable estate includes $0, and no other tax consequences ensue.

b. Jay's taxable estate includes $2,000,000.

c. Jay's taxable estate includes $0, and Ivana makes a gift of $2,000,000 to Debby.

d. Jay's taxable estate includes $1,000,000, and Hillary makes a gift to Debby of $1,000,000.

e. None of the above

Answer 1

Information about LIC: Life insursance policies are financial instruments that serve to minimise the financial impact of such uncertainities.One of the most defining and popular features of life insurance are the tax benefits .

1. Advantage of deduction of premium amount for the purpose of income tax calculation.

2.Tax exemption on tax benefits received.Total Sum received is fully exempt from income tax.

So according to the provisions sum recieved by Debby on the death of Jay sum of $2,000,000 is fully exempted in her hands.

So option A is correct .Jay's taxable estate include $0,and no other tax consequences ensue.