Wrongful Death Settlements And Tax Implications  

It is necessary to know at the outset what exactly qualifies as a wrongful death. For a death to be termed as wrongful and to claim for a compensation settlement arising thereof, it is necessary for the relatives to prove negligence on the part of the defendant which was the cause of the wrongful death.

Also, that his conduct was a contributory factor in the whole or part. A wrongful death is so classified as a consequence of a civil action brought by the relatives of the deceased against the defendant, the person whom they hold liable. Preponderance of evidence is the prevailing criterion which the relatives will have to prove.

Federal law holds that the amounts received in settlement for personal physical injuries – which includes wrongful death -- are excluded from payment of federal tax. Punitive damages however are taxable. But if prior to September 1995 states had statutes pertaining to wrongful death, then such damages when awarded were exempt from payment of tax.

The Internal Revenue Code, under section 104(a) (2) exempts a tax payer from payment of taxes on any monies other than punitive damages due to physical injury, illness or wrongful death when such monies are initially received. ‘Initially’ means just that. The amount is not taxable when you receive it. However if it is invested in anything other than a Structured Settlement Annuity, then the growth on these investments and the interest gained from them are taxable in entirety. Structured settlements are particularly attractive because all future payments under the structure are free from payment of income tax.

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Wrongful Death Settlements And Tax Implications

Tax-Penalities-For-Wrongful-Death-Settlements      What is wrongful death that entitles relatives to claim compensation? A wrongful death is a civil action initiated by the relatives of the deceased against a defendant who they hold liable. The claim falls within the jurisdiction of common law. In the United States, the standard of proof is preponderance of evidence. More..




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