What Is a Form 712 and When Is It Used for Life Insurance?

Life insurance can be a significant asset, especially when determining estate value for tax purposes. In some cases, the IRS requires documentation to verify policy details and valuation, which is where Form 712 comes into play.

This form is often requested during estate settlements when life insurance proceeds are subject to taxation or need to be reported. Understanding its role ensures compliance with tax regulations and helps avoid issues with the IRS.

Purpose and Usage

Form 712 serves as an official statement of a life insurance policy’s value for estate and gift tax purposes. If an estate exceeds the federal exemption threshold—$13.61 million for 2024—its assets, including applicable life insurance policies, may be subject to taxation. The form provides the IRS with a breakdown of the policy’s worth to ensure accurate tax calculations.

It is also required when a life insurance policy is transferred as a gift. The IRS uses it to determine the policy’s fair market value at the time of transfer and assess potential gift tax liability. This is relevant for policies transferred to irrevocable life insurance trusts (ILITs) or given to family members. If the policy’s value exceeds the annual gift tax exclusion—$18,000 per recipient in 2024—the excess may count toward the donor’s lifetime exemption or trigger a gift tax.

Key Information Required

Form 712 includes data establishing a life insurance policy’s value for tax purposes. The policy’s face value represents the amount payable to beneficiaries upon the insured’s death, but other factors, such as accumulated cash value, outstanding loans, and terminal dividends, can influence the final valuation.

Ownership history affects tax treatment. If the insured owned the policy at death, the IRS generally includes it in the taxable estate. If ownership was transferred within three years prior to death, it may still be included under the IRS’s three-year lookback rule, which prevents individuals from avoiding estate taxes through last-minute transfers.

The type of policy also impacts valuation. Whole life and universal life policies accumulate cash value, while term life policies typically do not—unless they are convertible or have return-of-premium features. If a term policy is active at death, Form 712 must reflect its replacement cost or interpolated terminal reserve value to determine its taxable inclusion.

Filing Considerations

Accuracy is essential, as errors or omissions can lead to IRS scrutiny, audits, or additional tax liabilities. Since this form is often included with estate tax returns (Form 706) or gift tax filings (Form 709), discrepancies between reported values and supporting documentation may trigger further examination. Ensuring valuation aligns with the insurer’s records and policy terms helps prevent complications.

Timing is also critical. For estates required to file Form 706, the deadline is generally nine months after the date of death, with a six-month extension available using Form 4768. If Form 712 is needed for a gift tax return, it must be filed with Form 709, which is due by April 15 of the year following the transfer. Since obtaining policy details from the insurance provider can take time, early coordination is recommended.

Recordkeeping with the Form

Keeping thorough records of Form 712 is important for executors and beneficiaries, as it serves as official documentation of a policy’s valuation. Estate and gift tax matters can be subject to IRS review for several years, so retaining a copy alongside related tax filings ensures compliance. The IRS generally has three years from the date of filing to audit an estate or gift tax return, but if substantial omissions are found—such as an understatement exceeding 25% of the estate’s value—this window extends to six years under Internal Revenue Code 6501(e).

Proper recordkeeping also helps resolve disputes over estate distributions, creditor claims, or beneficiary disagreements. If multiple heirs are involved, a well-documented valuation can prevent conflicts over the policy’s worth. Additionally, if a policy was transferred before death, retaining past Form 712 filings supports historical valuation records, which may be necessary for future tax filings.