Are Wrongful Death Settlements Taxable in Kentucky?

A family seeking financial compensation for the loss of their loved one does so by filing a wrongful death claim. Once the case is settled, any awarded compensation is divided among the surviving family members. One question that arises in these types of civil cases is whether a wrongful death settlement is taxable.

A wrongful death attorney in Kentucky can help you through the process of filing the claim, handling the settlement, and determining what portion is taxable.

What is a Wrongful Death Settlement?

When a deceased person’s family wins a wrongful death suit, they receive compensation for damages resulting from the fatal incident. This is a settlement, and the amount in a wrongful death case depends on several factors. Details that may impact a wrongful death settlement include:

• The age and overall health of the deceased person;
• The income and earning potential of the deceased person;
• The degree of liability and the person responsible for the fatal incident;
• The insurance coverage of both parties;
• Medical expenses and funeral costs; and
• Having an experienced wrongful death attorney.

When a wrongful death case reaches a settlement, the amount is either paid in a lump sum or structured settlement. A lump sum is a one-time payment that covers all economic and non-economic damages to cover the at-fault party’s financial responsibility at once. A structured settlement is when the payment is received in installments over time.

Compensatory Damages vs Punitive Damages

When attempting to navigate the complex legal realm of civil suits, it’s important to establish the different forms of compensation the victim and their family can seek. The money entitled to those who win a lawsuit is called damages. In a civil case, damages are broken down into two categories:

1. Compensatory damages – Compensation designed to reimburse the plaintiff for the loss incurred by the negligent incident. Compensatory damages in a wrongful death case may include the following:
   • Medical expenses or emergency hospital services;
   • Funeral and burial costs;
   • Lost wages and earning capacity of the deceased;
   • Emotional distress;
   • Loss of consortium;
   • Pain and suffering;
   • Property damage; and
   • Legal costs.
2. Punitive damages – Compensation designed to punish the negligent person for their wrongdoing. The type of harmful behavior that may be awarded punitive damages includes serious misconduct, or where the defendant was proven to be grossly negligent or reckless.

Whereas a judge would award compensatory damages to cover the actual financial losses a victim or their family suffers from the incident, punitive damages are awarded separately. The fine line in establishing grounds for punitive damages is a case where the responsible person or party acted in an intentionally harmful way. Regarding a wrongful death case, this could include a drunk driver killing another person on the road.

Who is Awarded Damages in a Wrongful Death Settlement in Kentucky?

Unlike a personal injury case where the victim is still alive to seek compensation, wrongful death cases imply that the victim is now deceased. That puts the responsibility of filing any legal claims on the surviving family. However, any awarded compensation is intended to help support the surviving family and the financial burden caused by their loved one’s death. It is important to note that there are strict rules regarding who can be awarded a wrongful death settlement. This is where things can get ugly between families, and where an attorney with extended experience with wrongful death cases can help. In Kentucky, the hierarchy of individuals entitled to settlement money is based on the following scenarios of surviving family members;

• The surviving spouse;
• The surviving children;
• The surviving parent or parents of the deceased; or
• The deceased person’s estate.

Given that each family’s scenario will differ, it is important to have a legal expert help explain and manage this aspect of wrongful death cases. The experienced Kentucky attorneys with Morrin Law can answer any questions you have during a free case evaluation we offer.

Are Damages in a Wrongful Death Case Taxable?

Once the surviving family is successful with their wrongful death case, it’s time for the settlement. So, what happens with the money awarded from a wrongful death suit? Will it be taxable?

In short, the IRS considers settlements compensatory damages. That means the financial award is intended to provide compensation for the family’s losses, both economic and non-economic. However, there are certain circumstances where damages can be taxed. This includes any money awarded for punitive damages. Income that would have been earned by the deceased would also be taxable.

If you have specific questions regarding typical payouts of wrongful death suits and how it is taxed, consult the experienced wrongful death attorneys at Morrin Law.

Why You Should Hire Morrin Law

You should consult with an attorney before accepting a settlement in a wrongful death case. Dealing with the aftermath of a wrongful death suit can be complicated. Working with an experienced lawyer can help you understand tax laws and what liabilities you may have from your wrongful death settlement. The Kentucky personal injury attorneys with Morrin Law work to make sure your best interests are represented in all stages of a wrongful death suit—from negotiations to settlements, our team will be there for you every step of the way. Contact our office today and receive a risk-free evaluation of your case.