Sixteen years ago, Ms. Cole purchased a $500,000 insurance policy on her own life and named her
Question:
Sixteen years ago, Ms. Cole purchased a $500,000 insurance policy on her own life and named her son as sole beneficiary. She has paid $31,280 total premiums to keep this policy in force.
a. This year, she liquidates the policy for its $38,500 cash surrender value. Does she recognize income on the liquidation?
b. Now assume that Ms. Cole is terminally ill. The insurance policy provides that a person with a life expectancy of less than one year can liquidate the policy and receive 80 percent of the death benefit. She does so and receives a $400,000 accelerated death benefit. Does she recognize income on the liquidation?
Assume the taxable year is 2018.
Step by Step Answer:
Principles Of Taxation For Business And Investment Planning 2019 Edition
ISBN: 9781260161472
22nd Edition
Authors: Sally Jones, Shelley C. Rhoades Catanach, Sandra R Callaghan