Losing a loved one unexpectedly is always devastating, and the last thing most families want to worry about is taxes. However, understanding what portion of your settlement may be taxable and structuring the agreement accordingly could save your family thousands of dollars.
So, is a wrongful death settlement taxable? These settlements generally aren’t taxable, but exceptions exist for punitive damages, certain emotional distress damages, and accrued interest.
If you’ve lost someone you love due to negligence, you may feel overwhelmed by unexpected expenses and emotional trauma. A Kansas City wrongful death lawyer can handle your case so you can spend time with your family.
Is a Wrongful Death Settlement Taxable?
In most cases, wrongful death settlements are not taxable under federal law. The Internal Revenue Service (IRS) generally does not tax money you receive as compensation for physical injuries or death.
However, there are exceptions:
- Punitive damages: These are almost always taxable because they are meant to punish the defendant rather than compensate survivors.
- Interest earned: If the settlement accrues interest before or after being paid, that interest is considered taxable income.
- Emotional distress damages: If part of the settlement compensates you for emotional distress unrelated to physical injury (such as anxiety caused by financial hardship), it may be taxable.
Do I Have to Report Wrongful Death Settlement Money to the IRS?
Typically, you do not have to report the non-taxable portion of your wrongful death settlement to the IRS. However, punitive damages and interest are treated as taxable income and therefore must be reported.
Contact our Kansas city personal injury lawyers now.
How Can I Avoid Paying Taxes on a Wrongful Death Settlement?
While you can’t get around federal tax law, you can strategically structure your settlement to reduce or eliminate your tax burdens via:
- Careful allocation of damages: You can request that your settlement clearly outline which amounts are compensatory (non-taxable) versus punitive (taxable).
- Structured settlements: You can opt to receive your settlement in installments over time, which can prevent interest from accumulating and reduce your tax exposure.
- Legal guidance: Your lawyer and a tax professional can work together to draft the agreement in a way that minimizes IRS attention and maximizes your non-taxable compensation.
Who Can File a Wrongful Death Claim?
When it comes to filing a wrongful death lawsuit in Missouri, RSMo Section 537.080 lays out a strict order of priority:
- Spouse, children, or parents: The surviving spouse, children, lineal descendants of deceased children, or parents have the first right to file.
- Siblings or their descendants: If no spouse, children, grandchildren, or parents exist, then brothers, sisters, or their descendants may bring a wrongful death action.
- Plaintiff ad litem: If none of the above family members exist or choose to file, the court can appoint a “plaintiff ad litem” to represent the deceased’s estate and beneficiaries.
What Types of Damages Can You Recover in a Wrongful Death Lawsuit?
If you’ve lost a loved one due to someone else’s negligence, you can pursue a variety of damages, including:
- Medical expenses: You can seek damages for hospital stays, surgeries, medications, and other care provided before your loved one passed.
- Funeral and burial expenses: You may be reimbursed for funeral services, cremation or burial costs, and related expenses.
- Lost income and benefits: You can claim the wages, salary, and employment benefits your loved one would have provided had they lived.
- Loss of future earning capacity: You may recover the value of the income your loved one would have earned over their lifetime.
- Loss of services: You can seek compensation for the household tasks, childcare, and other contributions your loved one provided.
- Loss of consortium and companionship: You may be compensated for the loss of love, guidance, companionship, and emotional support your loved one provided.
- Punitive damages: In cases of egregious or reckless conduct, you may be awarded additional damages meant to punish the wrongdoer.
How Are Wrongful Death Settlements Paid Out?
If all eligible beneficiaries agree on how to divide a wrongful death settlement in Missouri, the court usually honors that agreement. However, if the beneficiaries cannot agree, the court decides how to apportion the settlement. Wrongful death settlements can be disbursed all at once (lump sum) or over time (structured settlement).
Why Hire a Wrongful Death Lawyer?
If you’ve lost a family member in a preventable accident, a wrongful death lawyer can provide:
- Legal guidance: A lawyer can explain whether you have the right to file a wrongful death case and guide you through the process.
- Accurate valuation: An attorney can calculate the true value of your case, assessing both economic and non-economic damages.
- Negotiation power: A lawyer can negotiate aggressively with insurance companies to secure the maximum possible payout for your family.
- Tax protection: An attorney can help ensure your settlement agreement is drafted in a way that minimizes your tax obligations.
- Court representation: If your case goes to trial, a lawyer can present your case and advocate for your family.
Speak to a Wrongful Death Lawyer Today
A wrongful death settlement can help ease financial pressure after the loss of a loved one, but the tax implications are often complex. If you’ve lost a loved one due to negligence, a wrongful death attorney from Foster Wallace Personal Injury Lawyers can help you recover the maximum compensation available and avoid unnecessary tax burdens.
Schedule a free consultation to find out how much money you could save.
