Life insurance death benefits are generally not subject to federal income tax, and Colorado does not tax life insurance proceeds paid to a beneficiary. Colorado has no estate tax and no inheritance tax.
Exceptions to tax-free treatment include interest earned if the benefit is paid in installments and policies transferred for value. Very large estates may owe federal estate tax, since life insurance you own counts toward your taxable estate; some families use an irrevocable life insurance trust (ILIT). Coordinate with a Colorado estate planning attorney or CPA for larger estates.
Questions about your own policy? Johnson Insurance Agency in Englewood helps families and businesses across the Denver metro area and Colorado compare coverage from multiple carriers. Call us at 303-768-8130.
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