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Apr 1, 2011 12:00 PM
Death and Damages Can Be Taxing
Knowing the financial consequences can give your client a leg up when settling a case
You may have clients who are plaintiffs in a wrongful death or survival lawsuit (based on another's death) or in a lawsuit stemming from their own personal injuries. Those clients, and their personal injury attorneys, often don't realize the importance of settling cases with future income and estate tax liabilities in mind. But their understanding, or at least their appreciation of the potential tax liabilities' significance, is critical so they can take this into account when designing the settlement.
Depending on how a settlement is structured, plaintiffs in a wrongful death or survival lawsuit may be saddled with unexpected income and estate tax liability. Also, if a plaintiff in a personal injury lawsuit dies prematurely, the untimely death can cause large amounts of assets to enter his gross estate and become taxable, sometimes resulting in surprisingly considerable estate tax liability, even though the beneficiaries of the plaintiff's estate may only be entitled to future payments. To avoid surprises and reduce this tax liability, it's important for trusts and estates attorneys to be aware of clients' pending litigations and advise them of the income and estate tax implications of proceeds obtained from these potential settlements.
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Topics of Interest
| Estate Tax | Donor Advised Funds |
| GSTs | Family Offices |
| Private Foundations | Life Insurance |
| 2010 Tax Act News | Industry Trends Surveys |
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