When it comes to wrongful death settlement, the compensation is received through either a lawsuit in a civil court or out of court settlement. This kind of settlement is not obtained through criminal court where the accused is punished for the wrongful death. When a plaintiff cannot prove criminal negligence, then he or she can seek recourse via civil court.
Usually wrongful death settlements cover the loss of monies due to the death of the person. Hence, when it comes to the death of a child, this loss cannot be proven. So, invariably parents can recover just the funeral expenses. Nonetheless, the settlement amount for wrongful death can be as much as millions of dollars. So, invariably the beneficiaries receiving the settlement amount want to know the tax implication. They want to know whether wrongful death settlement is taxable.
Invariably, settlement for wrongful death is not taxable. The amount received is considered as a part of the deceased person's estate. However, when it comes to estate taxes, the size of the deceased person's estate has to be considered. There is a tax exemption for estate taxes and taxes will only have to be paid if the estate value is more than the prescribed limit. For instance, in the year 2009, tax exemption for estate taxes was $3.5 million. So, only if the estate value was more than this amount, the beneficiaries would have to pay taxes; otherwise the estate was tax free. Hence, the settlement amount received from a wrongful death lawsuit is added to the value of the estate and the exempted amount is deducted. Anything more than the exempted amount is subject to federal estate taxes.
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