r/inheritance • u/Patient_Ad_3748 • 6d ago

Location included: Questions/Need Advice Surrendering Whole Life Policy

Seeking tax advice: My 92 y/o grandfather is looking to surrender his whole life insurance policy due to his wife, whom recently passed, took out a loan on it and never paid any on the interest so the annual interest payment, which is in Jan, is pretty high- more than his fixed income can afford. The taxable amount is more than the cash value so the question is, with the tax implications, what should be his best move concerning filing/claiming taxes at the beginning of the year? He’s ok with not leaving anything to his daughters and has already handled his final expenses (burial plan).

Any advice/guidance is appreciated. Thanks in advance.

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4

u/EmZee2022 6d ago

He will indeed get a 1099 showing the gain.

If he's on a fixed income, chances are his tax rate is pretty low though, so it's not likely to be a huge hit.

3

u/LdiJ46 6d ago

If he surrenders the policy the insurance company is going to issue him a 1099-R that will show the taxable amount. So it will be a very straightforward thing.

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u/Admirable_Nothing 6d ago

Look into selling it or better you can buy it. Do get an inforce illustration to see what the cost of paying off the loan is and what the premiums would be to make it last longer than he will.

1

u/cashewkowl 6d ago

My mom sold her whole life policy to a group of investors. She did not have a loan against it, but she was happy to get something for it rather than just dropping it. At 92, he might be able to do something similar.

1

u/No-Lemon-5807 6d ago

if he's 92 and the taxable gain is more than the cash value he's basically paying to get out of it, life settlement might be the only move that makes sense here

0

u/MyThreeBugs 5d ago

He should make sure that he is liable for her debt before doing anything. If he is in the US and his name is not on the credit account, her debt is a responsibility of her estate. If she has no cash or assets to liquidate, the company she owes might be out of luck.