Taxes on settlements for wrongful death and survivor actions differ. But before we get into the difference, it’s important to understand the differences between these two types of lawsuits. In a wrongful death lawsuit, a personal representative of the deceased brings the case on behalf of beneficiaries like a spouse, children, or parents. The lawsuit seeks to recover damages that the beneficiaries experienced.
A personal representative of the decedent files a survival action on behalf of the deceased’s estate. It seeks damages the deceased suffered prior to death, such as medical expenses, lost wages, and more. While beneficiaries who recover damages in a wrongful death lawsuit may ultimately recover these survival action damages from the estate, they do not recover them directly.
Taxes on Wrongful Death Settlements or Awards
The amount of damages a beneficiary recovers from a wrongful death lawsuit depend on Pennsylvania intestacy laws, which outline which beneficiaries recover what proportion of damages. These laws kick in to divide an estate when a person dies without a will, but they apply to wrongful death settlement distribution regardless of whether the person had a will. We discuss more details of intestacy laws in a previous post about beneficiaries in a wrongful death claim.
Because the wrongful death settlement proceeds pass directly to the beneficiaries, they are not subject to estate or inheritance taxes. The proceeds are also not counted as income for the beneficiaries, so they are not subject to income taxes. Thus, wrongful death settlements or awards are generally not taxable. Of course, there are always exceptions, so contact a lawyer and an accountant or tax professional for more specific information.
Taxes on Survival Action Settlements or Awards
The damages awarded to the decedent’s estate are subject to estate taxes and inheritance taxes when they pass to beneficiaries. Essentially, these settlements first go to the estate, becoming part of the estate. The decedent’s will or Pennsylvania’s intestacy laws will then dictate how the estate – which now includes the survival action settlement – will distribute to beneficiaries.
Note that this is in contrast to the wrongful death settlement or award, which is generally not taxable. Of course, beneficiaries should always consult a lawyer and an accountant or tax professional about their claim and the settlement or award.
What happens if a personal representative files both wrongful death and survival actions?
Many cases involve filing a wrongful death lawsuit and survival action. In such cases, a court may decide to distribute the proceeds accordingly between the wrongful death claim and survival action. Thus, the beneficiaries may recover damages directly from the wrongful death lawsuit as well as indirectly from the survival action as part of the estate distribution.
Talk to a wrongful death lawyer if you wish to file a lawsuit against a party you believe is responsible for your loved one’s death. Share your concerns about settlement or award distribution and how to maximize beneficiaries’ recovery. Your attorney can also help the personal representative of the deceased collect appropriate evidence, build the case, and establish entitlement to damages in a wrongful death and survival action.
Cordisco & Saile LLC Help Families Recover Compensation for Damages
No amount of money can compensate for the death of a loved one. However a wrongful death action can help survivors of the deceased deal with many of the financial stresses that they face, especially if the deceased was the main earner in the family.