May a life insurance beneficiary be required to pay estate tax attributable to the death proceeds?
Yes, under either of two circumstances: (1) Where the decedent/insured has directed in his will that the life insurance beneficiary pay the share of death taxes attributable to the proceeds; and (2) where the state of the decedent’s domicile has a statute that apportions the burden of death taxes among probate and nonprobate beneficiaries in absence of any direction from the decedent regarding where the burden of death taxes should fall. Most states have statutes that apportion death taxes (federal, state, or both) among the beneficiaries of an estate, probate and nonprobate, under circumstances where the decedent has not directed otherwise. At this writing, the states which place the death tax burden on the probate estate (technically, the residuary estate) are Alabama, Arizona, Georgia, Iowa, Michigan, Mississippi, and Wisconsin.
