AboutGerard L. Samoleski, CPA* Expertise Individual Income Tax, Business Income Tax, Partnership Income Tax, Estate Tax, Gift Tax, Tax Planning, Business Valuation, Divorce Tax. I can't answer legal questions as I am not an attorney.
Experience 10 years of Federal and State tax preparation for high-net worth individuals, including a major international accounting firm.
Organizations AICPA, FICPA, NACVA
Education/Credentials Bachelor of Business Administration (Accounting Major)- University of Miami (FL);Master of Science of Taxation, University of Miami (FL)
Awards and Honors Certified Public Accountant*, Certified Valuation Analyst, Accredited in Business Valuations. *Regulated by State of Florida
Question My parents have both died. Father in 03/07 & mother in 11/07. Both were on Medicaid w/ no assets. A cash surrender value life insurance policy was found by me in 10/06 & I notified Medicaid. They asked for the $1,900.00 cash from the policy. I checked "pay taxes" on the form to the insurance company when the money was requested. Due to loans taken on the policies, the cash surrender amount was less than taxes owed & the loan was called a "taxable gain." I'm assuming taxes will be owed and since they both passed away in 07 and were on Medicaid with no assets, and I was their POA and Trustee for Medicaid patient payments -- am I going to be liable for these monies owed to the IRS?
Answer Kyle:
Unless you received money from your parents estates, you won't be personally liable for the taxes they owe on the life insurance surrender.
That being said, regarding the life insurance, the only part that is taxable is the amount that was returned to the insured in their lifetime in excess of the premiums they paid. If you made $5000 in premium payments and have a cash value of $10,000 that you get a loan on, the taxable portion is only the $5,000 difference.
The only thing that confuses me about your question is that you had to give $1,900 to medicaid for the cash value when there was another outstanding debt. I am a tax law expert, not a medicaid expert, however my instinct tells me that they taxes of the deceased get paid before medicaid absorbs assets.
I hope this helps and am sorry to read of your losses. I hope 2008 is much better for you than 2007 was.
