Woman mourning the wrongful death of a spouse.

Wrongful death lawsuits are often settled out of court for a sum of money. This article discusses what happens to the settlement if it is not part of a larger estate.

These settlements are given to bereaved family members who are mourning the loss of a loved one. The last thing they need is the headache of trying to determine whether or not the settlement is taxable.

Quick answer: the IRS states that a wrongful death settlement is not taxable income. This is because it is a form of personal injury claim.

However, some aspects of a wrongful death settlement can be claimed by the IRS to be taxable. We’ll explore these differences in this article.

If you are struggling to process the tax consequences of your settlement, you may want to look into hiring a wrongful death lawyer.

What is wrongful death?

Wrongful death is a legal term that describes the death of an individual caused by the wrongful act of another. This usually happens when someone else is negligent, reckless, or intentional in their actions which results in the person’s death.

For example, if your loved one is killed in an accident with a drunk driver,  it may be possible to file a wrongful death claim against them. Some other causes of wrongful death claims are medical malpractice, defective products, or workplace accidents.

Who can file a wrongful death claim?

Wrongful death claims are filed by the personal representative of an estate, also known as executor or administrator. This person is in charge of the property and assets of the deceased person when they die.

If there isn’t anyone to file a wrongful death claim, then state laws usually determine who can file one.

Additionally, living family members of the deceased can file a wrongful death claim. These individuals must be either a spouse, parents, or children of the deceased.

What is a wrongful death settlement?

A wrongful death settlement is an agreement to settle the claims of a wrongful death case. This usually means that all parties agree to drop any other lawsuits and resolve their disagreement in another manner.

Usually, this takes the form of a monetary settlement, which can cover things such as medical costs, lost wages, and funeral expenses.

Wrongful Death Damages

In most cases, wrongful death damages are meant to compensate the deceased person’s family for their loss. 

In most states, wrongful death damages can include funeral and burial expenses, lost earnings of the deceased up until their date of death, loss of financial support from the deceased, and pain and suffering experienced by the family. 

In some states, punitive damages may also be awarded to punish the defendant in a wrongful death claim.

The estate trustee can also file a claim for the deceased’s pain and suffering and medical expenses up until their death.

Are wrongful death settlements taxable?

According to the IRS, wrongful death settlement awards are not taxable.

In Rule 1.104-1,  the IRS states that the proceeds of wrongful death claims are not taxable regardless of whether they were paid by an insurance company or due to an award in a lawsuit.

The rule states that these damages are considered to be for personal injury, which is not taxable. The only exceptions to this rule include punitive damage awards and interest on your settlement amount.

What portion of wrongful death settlements are taxable?

In certain cases, some portion of the wrongful death settlement that you received can be taxable.

In certain scenarios, these may be taxed:

  • Damages for medical bills and expenses deducted from previous taxes
  • Emotional distress damages if not caused by an injury
  • Punitive damages

As a general rule, if your settlement is not due to a personal injury that you received, then a portion of the award can be taxable.

However, it’s important to note that this is a complicated and specific case-by-case basis.

If you have questions about whether or not you should pay taxes on your wrongful death settlement, contact an experienced wrongful death attorney.

Tax-Free Portions

These parts of your settlement will always be tax-free:

  • Damages for a physical injury
  • Damages for emotional distress or suffering from an injury
  • Medical damages
  • Lost wages due to injury

If you have questions about the taxability of your settlement, contact an attorney at your earliest convenience. With help from a lawyer, you can be confident that your taxable portion is paid in full.

Wrongful Death Statute of Limitations

The time limit for filing a wrongful death claim is based on state law.

In general, most states have two years or less to file a wrongful death claim after the date of your loved one’s death. If you don’t file within this period, then you’ll likely lose your ability to bring your case to court.

File your claim as soon as possible to avoid missing your filing date.

Hire a Wrongful Death Attorney

When filing a wrongful death claim, it’s important to choose an attorney that you can trust and who has the knowledge and experience necessary to bring your case to court.

If you don’t file your claim within two years of your loved one’s death, then you’ll likely lose your ability to pursue damages for their death. Hiring a wrongful death lawyer from Lytal, Reiter, Smith, Ivey & Fronrath as soon as possible will give you the best chance of a successful outcome.