Inheriting a $325,000 life insurance policy as sole beneficiary - tax implications for sharing with sibling?

I'm sorry for your loss. The good news is that life insurance proceeds paid to a beneficiary are generally not considered taxable income. The IRS doesn't view this as income you need to report on your tax return. So you receiving the $325,000 as the named beneficiary won't create a tax bill for you. However, when you give half to your brother, that's technically a gift. In 2025, the annual gift tax exclusion is $18,000 per person. That means you can give any individual up to $18,000 per year without having to report it. Since you're giving your brother substantially more than that, you'll need to file a gift tax return (Form 709) with your federal tax return. Here's the important part though - you probably won't actually owe any gift tax. The amount above $18,000 counts against your lifetime gift and estate tax exemption, which in 2025 is quite high (around $13.61 million for individuals). Unless you've already given away millions in your lifetime, you won't owe actual gift taxes, you'll just need to file the form.

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I need to eat my words about Claimyr. After dismissing it, I was still struggling with some gift tax questions related to my mom's estate, so I decided to try it as a last resort. I was completely shocked when I got a call back in about 20 minutes with an actual IRS agent on the line. The agent walked me through exactly how to fill out the Form 709 for my situation and clarified some confusing points about the lifetime exemption. Saved me hours of frustration and probably some expensive mistakes. Just wanted to update my experience here since it actually worked way better than expected.

Everyone's focusing on the federal gift tax, but don't forget to check your specific state laws too! While the federal government doesn't tax life insurance proceeds, some states have inheritance taxes that might apply depending on your relationship to the deceased. Also, when you gift money to your brother, some states have their own gift tax rules. Nevada doesn't have a state inheritance or gift tax, but I'm not sure about Georgia. It would be worth checking if Georgia has any specific rules that might affect your brother when he receives this money from you. This is especially important with larger amounts like you're dealing with.

Just a thought - have you considered talking to the insurance company about changing the beneficiary distribution after the fact? Sometimes they can work with you if the claim hasn't been fully processed yet. My cousin was in a similar situation and the insurance company was able to split the payout directly between him and his sister, which avoided any gift tax reporting hassle entirely.

I'm really sorry for your loss. This is such a thoughtful thing you're doing for your brother during an already difficult time. The advice here about federal taxes is spot on - you won't owe income tax on the life insurance proceeds, and while you'll need to file Form 709 for the gift over $18,000, you almost certainly won't owe actual gift tax due to the high lifetime exemption. One thing I'd suggest is keeping good documentation of everything. Save records showing the insurance payout amount, when you received it, and when/how you transferred the money to your brother. If you ever get questions from the IRS down the road, having a clear paper trail will make everything much smoother. Also, since this is a substantial amount, you might want to consider consulting with a tax professional just to be extra safe, especially for filing that Form 709 correctly. Many CPAs offer consultations for a reasonable fee and it could give you peace of mind that everything is handled properly. Your brother is lucky to have someone who wants to do right by family even when they're not legally required to. Best wishes to both of you during this tough time.