Question
Hello,
I am about to be paid benefits from my deceased
father's life insurance policy. I live in Southern
California but the benefits are from an Illinois plan. Will I have to pay taxes on those
benefits?
Answer
Unless you BOUGHT the policy from him in anticipation of his death (unlikely), life insurance benefits are INCOME tax free. (You'll probably also get a tiny bit of interest on the proceeds from his date of death -- that is taxable just like any other ordinary interest.)
The amount of the proceeds IS part of his total estate, and if his totla estate exceeds $675,000 (except hat he left his wife) then there could be Federal estate tax to pay.