Death-settlement tax implications
Dear Tax Talk:
I have a lawsuit related to the death of my husband. I should receive a
large settlement. Will it be taxable? How much of it can I give to the
children without paying tax? I know that at least 60 percent of the money is
said to be for pain and suffering, but I'm not sure of the rest. Please
answer as soon as you can as I have already started receiving some of the
money.
Thank you,
Jeanette
Dear Jeanette:
Generally, a recovery in a lawsuit for pain and suffering for the death of
an individual is tax-free. You don't indicate what the remaining portion of
the settlement relates to, so I can only tell you that if the amount is for
punitive damages, it would be taxable. If the amount relates to lost wages
it would be tax-free. Your attorney should be able to provide you better
guidance on the tax implications.
If your children are not a party to the wrongful death action, then you
would basically be making a gift to them. You can make a gift to each one of
your children of up to $11,000 annually without gift tax implications. If
you have three children, you can give $33,000 in 2002 and $33,000 in 2003.
Source
Deduct the Cost of Your Child's Education?
Non-deductible child education expenses can't be transformed
into deductible expenses by virtue of assigning assets or income to
a trust, partnership, or other entity. Any investment scheme that
claims to allow you to deduct these types of expenses should be
considered highly suspect. Source IRS
FAFSA Frequently Asked Questions
The $$$ you're getting from wrongful death - is it an annuity?
Other taxable income (alimony received, business and farm income, capital
gains, pensions, annuities, rents, unemployment compensation, Social
Security, Railroad Retirement, and all other taxable income)
Check this out on the IRS site
Wrongful Death
Burford v. United States, 642 F. Supp. 635 (N.D. Ala. 1986).
The district court rejected Rev. Rul. 84-108 and concluded that Alabama
wrongful death proceeds are excludable from gross income
O'Gilvie v. United States, (1996 S. Ct.) 519 U.S. 79, 117 S. Ct. 452;
96-2 U.S.T.C. 50,664; 78 AFTR 2d 7454.
The Supreme Court ruled that all non-compensatory punitive damages are
taxable
When was the wrongful death lawsuit settled?
What is the wrongful death settlement - car accident, worker's
compensation, what, who's paying it to you. How much is pain & suffering,
etc.
