Tax Facts

115 / If a primary beneficiary of life insurance proceeds payable under a settlement option has the power to withdraw part of the proceeds, does the beneficiary’s failure to exercise the power constitute a taxable gift to contingent beneficiaries?

Updated: January 02, 2025 at 05:40 AM
Where the primary beneficiary has an annual, limited, noncumulative right of withdrawal, the beneficiary has made a gift to contingent beneficiaries when the beneficiary fails to exercise the right. A lapse of the right is subject to gift tax only to the extent that the right to withdraw exceeded the greater of $5,000 or 5 percent of the value of the proceeds at the time of lapse ( Q 205).1




1.     IRC § 2514(e).


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