Are Wrongful Death Settlements Taxable?
Losing a loved one unexpectedly is heartbreaking, and navigating the legal and financial aftermath can feel overwhelming. If you have received a wrongful death settlement or are in the process of pursuing one, you may be wondering: Are wrongful death settlements taxable? It’s an important question, especially because injury settlements are supposed to provide financial relief during an already difficult time. Understanding how the IRS treats these settlements can help you make informed decisions and avoid surprises down the road.
What is the Purpose of a Wrongful Death Lawsuit?
The purpose of a wrongful death claim or lawsuit is to recover damages through a wrongful death settlement or jury award. Wrongful death lawsuits are brought against a defendant accused of legal fault for the death of a close family member. The defendant may be a negligent driver, doctor, employer, caregiver, or manufacturer or any other person or entity whose negligence caused the death of your loved one. A representative of the estate brings the claim on behalf of immediate family members or other parties depending on the laws of the state.
How Can a Wrongful Death Attorney Help?
A wrongful death lawyer plays a key role in helping families recover damages after the loss of a loved one. Every state has its own laws governing wrongful death claims, including strict deadlines for filing called the statute of limitations, so it is important to have someone knowledgeable guiding the process. These cases can become complex very quickly, especially when multiple parties or insurance companies are involved. An experienced wrongful death attorney can offer both legal support and peace of mind during an incredibly difficult time.
A wrongful death lawyer can help gather critical evidence, determine who may be held liable, and ensure that all necessary legal procedures are followed. They also have the experience to accurately assess the value of the claim, including both economic and non-economic damages. In most cases, having good legal representation can significantly increase the chances of a successful outcome – including a settlement five to twenty times higher than a plaintiff could normally negotiate on their own. By trusting a skilled attorney, grieving families can focus on healing while knowing their case is in capable hands.
What is a Wrongful Death Settlement?
A wrongful death settlement is financial compensation for the survivors’ loss. Settlements typically include a range of both economic and non-economic damages that will help the family recover from the loss of their loved one.
Economic damages are meant to compensate for measurable costs resulting from a wrongful death. An easy way to know if a loss is economic is if it has a receipt, bill, or wage statement. Economic damages include:
- Medical bills
- Funeral and burial expenses
- Lost income or earning capacity
- Loss of benefits (like health insurance or pension)
- Property damage
Non-economic damages compensate families for losses that don’t come with a price tag but still have a deep emotional and personal impact. These damages are harder to quantify because they don’t come with receipts or documentation. Non-economic damages often include:
- Pain and suffering
- Emotional distress
- Loss of companionship or consortium
- Mental anguish
- Loss of enjoyment of life
How Are Wrongful Death Settlements Paid Out?
In most cases, wrongful death settlements are paid by insurance providers who carry liability coverage for the defendant. Because insurance policies usually have a policy limit amount that limits payouts, part of a very large settlement can end up falling on the negligent party. If the accused has no insurance coverage, then they will be personally responsible for any judgment or settlement amount and possibly the legal fees accumulated in the legal process.
Wrongful death settlements are usually paid by check or electronic transfer. After a settlement is reached, the insurance company or responsible party sends a lump sum to the plaintiff’s attorney, who deducts legal fees and then distributes the rest to the family or estate. In some larger cases, payments may be spread out over time through a structured settlement, but lump sums are more common.
What is the Average Payout in a Wrongful Death Suit?
If you are considering filing a wrongful death claim, you may be wondering: what is the average payout in a wrongful death suit? While wrongful death settlements should reflect the tragic loss to the loved one’s family, each circumstance is unique and that means settlement amounts vary widely. In some ways there is no such thing as a typical wrongful death settlement because each wrongful death case has its own, unique characteristics and the laws that apply to your case will impact the amount of compensation you can receive. While each case is different, most wrongful death settlements range from $500,000 to 10 million.
Are Wrongful Death Settlements Taxable?
In most cases, wrongful death settlements are compensatory, which means that the money is meant to provide compensation for economic and non-economic damages such as medical bills and pain and suffering. Compensatory payments may or may not be taxable depending on the reasons for awarding the money. Compensatory payments for physical injuries or emotional distress caused by physical injury or illness are non-taxable. Compensation for lost wages is typically taxable.
In rare cases – and depending on state law – a plaintiff may also recover punitive damages that are meant to punish the person or entity for their egregious behavior. According to the IRS, punitive damages are taxable and should be reported as “other income” in form 1040.
Because each situation is unique, it is very important for those receiving settlements to understand whether their settlement is compensatory and/or punitive and whether there will be any part of the settlement that is considered taxable income. Seek the guidance of a wrongful death attorney and a tax accountant to review the tax implications of a settlement proposal before accepting.
Seek the Help of a Wrongful Death Lawyer
If you lost a loved one due to the reckless/negligent/intentional behavior of another, you have enough to deal with. Let an experienced wrongful death attorney fight for justice on your behalf. It is not uncommon to receive a settlement from the insurance company that is five to twenty times larger with the help of a wrongful death lawyer. Call the most experienced practicing wrongful death attorneys Bellingham has at Tario & Associates, P.S. today for a FREE consultation! We have been representing grieving family members in Whatcom County, Skagit County, Island County and Snohomish County since 1979. You will pay nothing up front and no attorney fees at all unless we recover damages for you!
