Are Wrongful Death Settlements Taxable?
Posted in Wrongful death on May 19, 2021
Losing somebody that you love is an incredibly difficult thing to go through. This is particularly true if you lose a family member due to the careless, negligent, or intentional actions of another individual. Tennessee law allows family members or the estate of the decedent to recover compensation through wrongful death lawsuits. However, it is important to understand whether or not wrongful death settlements or jury verdicts are taxable. Here, we will discuss the various types of compensation available in these situations as well as whether or not the estate or family members will owe taxes.
Taxes are Almost Always a Certainty – Except for These Cases
We do not even want to beat around the bush when discussing whether or not your Tennessee wrongful death settlement will be taxable. We can look directly at information from the Internal Revenue Service (IRS), specifically at IRS Rule 1.104-1.
When we dig into this rule, we can see that wrongful death settlements are non-taxable because they are classified as part of a claim that resulted from personal injuries or physical illness. This is important information for family members or the estate of the deceased to know. When you understand that your wrongful death lawsuit settlement is not taxable, this can help you and your financial planner make the settlement last as long as possible and ensure that the needs of your family are met.
Are There Exceptions to This Rule?
As with everything else related to taxes, there are going to be exceptions to wrongful death lawsuit settlements and their taxable status. As we mentioned, the IRS will not tax your own for the actual wrongful death lawsuit settlement. However, there are certain circumstances under which the IRS may tax portions of settlement or amounts not directly related to the wrongful death. This can include the following:
- Any portion of the settlement you received for medical bills or other expenses that you have already deducted from your income in previous years.
- Portions of the settlement that you receive for emotional distress if the distress was not a direct result of the personal injury or illness that led to the wrongful death.
- Any proceeds from the wrongful death settlement or lawsuit classified as punitive damages. Punitive damages are not awarded in every wrongful death case, and these are reserved for instances where the actions of the defendant were considered to be grossly negligent or intentional.
A skilled Tennessee wrongful death attorney will be able to examine every aspect of any potential settlement or jury verdict and help you understand which portions are taxable and which portions are not. In general, you will not have to worry about paying taxes on your wrongful death settlement.
Who Receives the Wrongful Death Settlement Compensation in Tennessee?
When we look at the wrongful death laws in Tennessee, we can see that there are various individuals allowed to bring these claims in court. Initially, the right to file a wrongful death lawsuit falls solely to the surviving spouse of the deceased. If there is no surviving spouse, the following individuals, in descending order, are allowed to file the lawsuit:
- The surviving children or next of kin of the deceased
- The personal representative of the deceased’s estate
- The surviving parent(s) of the deceased, if the deceased was a dependent of the parent at the time of death
- The administrator of the deceased’s estate, if the deceased person was a dependent at the time of their death
If there is any confusion about who can file the wrongful death claim, a skilled attorney in Tennessee will be able to walk all the parties through TN laws.