Are Wrongful Death Settlements Taxable in Louisiana?

Losing a family member or a loved one is never easy. In addition to coping with the emotional stress and tragedy of your loss, families often face financial burdens. One question we frequently hear is, “Are wrongful death settlements taxable in Louisiana?” Generally, wrongful death settlements aren’t taxable, though some legal specifics apply. It’s important to understand how taxes can impact your settlement before you accept or distribute a wrongful death recovery.

About Jacqueline A. Scott & Associates

At Jacqueline A. Scott & Associates, we proudly advocate for our clients with integrity. We strive to provide quality legal services while advancing the conversation about how laws are created and implemented. Our Louisiana law firm, guided by Jacqueline A. Scott, is composed of seasoned legal professionals with over 75 years of experience between them.

Jacqueline A. Scott has personally spent more than 35 years helping individuals and families navigate the complexities of Louisiana’s wrongful death laws. With experience in local courts, including the Red River Parish Courthouse, located at 615 East Carroll St, Coushatta, LA 71019, our team understands the importance of providing unmatched client care.

Are Wrongful Death Settlements Taxable?

Usually, wrongful death settlements are not taxable. The IRS generally doesn’t tax money awarded for physical harm or illness, as outlined in Section 104 of the IRS Code. Because a wrongful death claim is created by the death of a person due to injury or harm, the bulk of any settlement will likely fall under this statute. Wrongful death settlement funds that would not be taxable include:

• Funeral expenses and burial costs
• Medical bills associated with the final injury or illness
• Loss of consortium
• Pain and suffering in connection with the loss

However, not all of your recovery may be tax-free. It depends on the nature of your compensation.

The U.S. Bureau of Labor Statistics reports that 5,486 workplace fatalities occurred across the country in 2022. This amounted to 1 worker dying every 96 minutes. The CDC reports that 44,000 Americans lost their lives in automobile accidents throughout 2022, making it the nation’s greatest cause of death.

When Portions May Be Taxable

Although wrongful death recoveries are generally not taxed, some components may be taxable. For example, punitive damages are likely to be taxable. These damages do not reimburse you for anything; instead, they are meant to punish the wrongdoer for particularly egregious behavior. Additionally, if a settlement covers lost wages the deceased would have paid taxes on, that part might be taxed.

Tax laws can be challenging, and the details here matter. That’s why it’s wise to have both a wrongful death attorney and an accountant look over your settlement offer before you agree to anything.

Common Mistakes to Avoid

After a wrongful death settlement is finalized, many families think that the struggle is finally over. However, families sometimes make errors after receiving settlement funds. One potential problem is thinking that all settlement funds are automatically tax-exempt. Another common mistake is neglecting to get tax advice before the funds are dispersed. A further error we often see is accepting a settlement too early, which can reduce your potential total compensation.

Who Receives the Settlement in a Wrongful Death Case?

If someone passes away due to the fault of another party, their wrongful death settlement does not go to just anyone; Louisiana wrongful death laws dictate who receives priority in a wrongful death recovery. In most situations, the spouse and children of the deceased individual will have the first chance to recover.

If there is no spouse or children, then the parents of the deceased individual are next in line. If there is no spouse, children, or parents, the siblings of the deceased individual recover, and so on. Grandparents will only recover if there are no spouses, children, parents, or siblings. If there are multiple people in one category, such as having multiple children, the recovery can be split between them.

Hire a Wrongful Death Lawyer

While no amount of money will ever reverse the loss of your loved one, it can hold the responsible party accountable if you hire a wrongful death lawyer. A skilled attorney can work hard to improve your family’s financial recovery and overall well-being.

Jacqueline A. Scott & Associates has been serving Louisiana families for over 35 years. Our priority is to pursue full compensation, using our experience and resources to navigate the process and prevent any setbacks.

FAQs

Do I Need to Report Wrongful Death Settlements to the IRS?

Just because most of your wrongful death settlement isn’t taxable doesn’t mean you’ll never have to report it to the IRS. For instance, any punitive damages or interest you receive would be taxable and need to be reported. Make sure you thoroughly document everything and correctly categorize the settlement to prevent any mistakes.

What Is the Difference Between a Wrongful Death Claim and a Survival Action?

Wrongful death damages compensate the surviving family members for their own injuries, like mental pain and suffering, along with the loss of care and support. A survival action is a claim to recover damages suffered by the deceased prior to death, such as the pain the deceased suffered. Wrongful death and survival actions can usually be brought at the same time, and each can affect how damages are categorized and awarded.

How Are Wrongful Death Settlements Paid Out?

Settlements for wrongful deaths are usually paid in two ways: either as a single payment or as a structured settlement spread out over time. The terms of the agreement and the beneficiaries’ needs determine the distribution. While lump-sum amounts allow quick access to money, structured settlements can offer long-term financial security. Financial planning and tax issues may also be impacted by the structure selected.

How Is a Wrongful Death Settlement Divided Among Family Members?

Determining how a wrongful death settlement will be divided varies based on Louisiana’s hierarchy of wrongful death laws and a family’s situation. Courts sometimes take into account each beneficiary’s connection to the victim and dependence on them. Disputes can occur in deciding who receives what percent of the settlement. Talk to an attorney about making sure it will be distributed fairly and according to state laws.

Contact Jacqueline A. Scott & Associates

If your loved one unfortunately passed away due to the negligence of another party, Jacqueline A. Scott & Associates can pursue your legal claim. Contact us today for more information.