The situation: My mother bought a life insurance policy and has been paying the premiums using after-tax dollars. The policy is held within a trust she set up with me and my siblings as beneficiaries. For reasons I won't go into, it didn't make any sense to continue paying the premiums for the policy. So we all (Mom and siblings) agreed to cancel the policy and evenly distribute the cash out value after surrendering the policy among the trustees. In the end I got a check for about $20k from the trust after the insurance company cancelled the policy.
Obviously I will seek professional guidance when filing my taxes, but for now I mostly need to understand if I need to stash away some of this cash for a tax liability.
The insurance company asserts that this does not generate any tax liability because it is simply a return of our after-tax premium payments (minus a penalty). However, given that the money was paid to a trust and then disbursed to my siblings from the trust I am not so sure.
Does anything in this scenario sound like I will likely incur a tax liability?