When an accident causes the untimely death of a loved one, your top priority is likely to conclude the settlement process quickly so you can put the unfortunate series of events behind you. However, receiving your compensation from the insurance company does not always mark the end of the process. The question remains as to whether your wrongful death settlements are taxable.
Do I Have To Report Settlement Money to the IRS?
In general, lawsuit settlements are taxable and you must report them to the IRS. However, wrongful death settlements are not taxable and do not require reporting to the IRS because they fall under an exempt category. Regardless of state, you do not pay taxes on a wrongful death settlement.
IRC Section 104 states that income received from a lawsuit is exempt from taxable income if you recover the damages on account of personal injury or any other physical injuries, including wrongful death.
How Are Wrongful Death Settlements Distributed?
Wrongful death settlements follow the same rules of distribution as other civil lawsuit settlements. In Arizona, for example, this means that the surviving family members affected by the wrongful death will receive compensation in proportion to their damages.
The family members eligible to receive compensation through a wrongful death settlement in Arizona are:
- Spouses
- Children
- Parents
- Any personal representative of the deceased
The distribution of wrongful death settlements can vary greatly depending on the state.
Do Wrongful Death Settlements Work Differently in Each State?
At Sargon Law Group, our wrongful death attorneys serve families in Arizona, Colorado, New Mexico and California. Each of these states handles wrongful death settlements differently, so we leverage our experience to help families navigate the process and understand the complexities of their state’s unique laws.
The statute of limitations is the first and most pressing difference between wrongful death cases in varying states. Arizona, Colorado and California have a statute of limitations of only two years from the individual’s death while the statute of limitations in New Mexico is three years.
Settlement distribution also differs by state. California courts leave it up to the surviving family to distribute the settlement equitably, while Colorado follows the terms of the state’s descent and distribution statutes. New Mexico law ensures that a surviving spouse receives half of the settlement’s value and divides the rest among any remaining children or grandchildren.
The actual process of negotiating a settlement can even differ between states. Arizona, Colorado, New Mexico and California all follow a system of comparative negligence when determining how much compensation an affected party is eligible to receive after an accident. Our team at Sargon Law Group leverages experience with this legal framework to advocate for the best possible settlement.
Contact the Wrongful Death Attorneys at Sargon Law Group
While it is not the case that a wrongful death settlement is taxable, that does not change the fact that you should pursue the highest possible amount of compensation you can receive from the negligent party responsible for your loved one’s death. Contact us at Sargon Law Group today to learn more about how we can support you throughout your wrongful death claim.