If you lost your loved one in an accident caused by someone else’s negligence, you may be considering filing a wrongful death claim. By means of a wrongful death lawsuit, surviving family members can obtain monetary compensation for losses they endured due to the negligent party’s actions.
One factor you will want to consider when evaluating the pros and cons of filing a wrongful death claim is how much of the settlement you will actually receive. Are wrongful death settlements taxable? If so, what can you do to minimize or avoid having to pay taxes on the compensation you are awarded?
If you have any questions about filing a wrongful death lawsuit, the compassionate personal injury lawyers at Phillips Law Group are here to help. Contact our law firm today to schedule a free, no-obligation case review session.
Call us at 602-222-2222 or submit your case information via the online evaluation form on this page.
The loss of a loved one in a preventable accident is one of the most tragic events a family can experience. While money from a wrongful death settlement can in no way compensate for the loss of a loved one, it can take some of the financial burden off of the family’s shoulders as they grieve.
The amount and type of damages awarded in a wrongful death lawsuit will vary depending on the circumstances of your loved one’s death. There are three types of damages that may be awarded in a wrongful death case: economic, non-economic, and punitive.
Economic damages awarded in a wrongful death claim may include compensation for:
The following non-economic damages may be awarded in a wrongful death case:
In some situations, punitive damages may be awarded in a wrongful death lawsuit. These types of damages are not designed to compensate a victim, but rather to punish a victim for particularly reckless behavior and to deter others from behaving in a similar manner.
In general, most wrongful death settlements are non-taxable. This is because the compensation is intended to make the estate or the family whole again after their loss. Taxing these damages would undermine the purpose of the reward.
The Internal Revenue Service (IRS) does not tax compensatory damages awarded in wrongful death and personal injury lawsuits. This means if you are awarded $200,000 in compensation, that money goes to you – not taxes. However, there are some portions of a settlement that may be taxed.
There are a few exceptions to the rule that wrongful death damages are not taxable. Compensatory damages are not taxed because they are awarded to make up for a loss rather than considered to be income. However, punitive damages awarded in wrongful death cases are taxable.
The reason behind this is that punitive damages do not relate to the family’s losses. They are awarded to punish the defendant. For this reason, the IRS considers punitive damages as taxable income in most situations.
In addition to punitive damages, the following may be taxed in wrongful death lawsuits:
Wrongful death settlements can be paid out in one lump sum or in a structured payment settlement. The parties involved in the settlement will determine how it is paid.
A lump sum payment is when the full amount is paid all at once. A check or a bank transfer may be issued to the plaintiff or his or her legal representative right after the case is settled.
Some people prefer to be awarded a lump sum payment because it lets them pay down debt they may have accrued while the lawsuit was pending. This may include medical bills, funeral arrangements, burial costs, and living expenses. An upfront payout allows the defendant to pay off these debts before too much interest accrues.
One downside of a lump sum payment is that it can be difficult to manage that much money all at once. Some plaintiffs use the money unwisely, spending it all before their debts are even paid off.
In a structured settlement agreement, the plaintiff is paid in regular installments over a period of time. These installments may be paid monthly, quarterly, or yearly, depending on the established arrangement.
The main benefit of a structured settlement is that it provides long-term financial security to the loved ones of the deceased. This is especially important if the deceased was the primary financial provider in the family. It will provide the family with a reliable source of income for a set amount of time.
One negative aspect of a structured settlement is that the plaintiff is not allowed to pay off their debt all at once, which means it may continue to accrue interest. Another drawback is that since the structured payments are paid out over a course of years, there is a potential for non-payment from the defendant.
It is also important for a plaintiff to know that once they accept the terms of a structured settlement, they are difficult to change. So once they agree to the terms of the installments, they cannot go back and ask for a lump sum or more frequent payments.
Wrongful settlements can often involve significant amounts of money, but how the settlements are categorized and taxed can greatly affect the payout amount a family actually receives. A wrongful death attorney can help you maximize the amount you recover.
When handling wrongful death cases, our knowledgeable and experienced lawyers work to ensure that the settlement documents allocate how much of the settlement is for compensatory damages and what amount is for punitive damages. When collecting taxes, the IRS will usually follow the judge’s allocation of these damages.
Taxation on wrongful death settlements can be complicated and difficult to understand. A personal injury lawyer can help you through every step of filing a wrongful death case and ensure that you are meeting all federal and state tax requirements.
A wrongful death attorney will protect your legal rights and ensure that you and your family receive the maximum amount of compensation you are entitled to receive. Consult with a member of Phillips Law Group today to evaluate your case at no cost to you. We do not charge any fees unless you recover compensation, so you have nothing to lose.
Call us at 602-222-2222, start a live chat with a representative on our site, or submit the online free evaluation form on this page to discuss all of your legal options.
