When you lose a family member through someone else’s negligence or deliberate action in California, you face not only immense pain but also a complex legal system that regulates wrongful death settlements. Our team of attorneys in Woodland Hills helps families understand not only the legal process but also the often overlooked tax aspects of these settlements on a daily basis. Bojat Law Group stands out in that we approach each case individually – we understand that each family faces unique challenges when it comes to the loss of a loved one and the financial consequences that result. Learn what factors affect tax liability, and how wrongful death attorney Woodland Hills can help families in these cases.
Are Wrongful Death Settlements Taxable in California
Under United States and California law, most wrongful death settlements are not taxable.
What does Article 104 (a) (2) of the IRC say?
Under Internal Revenue Code (IRC) section 104 (a) (2), compensation received for bodily injury or physical illness, including wrongful death settlements, is generally exempt from federal income tax.
However, the IRS makes a clear distinction between different types of compensation:
Non-taxable:
- Compensation for physical injuries
- Compensation for emotional pain and suffering
- Medical expenses related to the case
- Funeral and funeral expenses
Taxable
- Interest on judgment or settlement
- Penalties
- Lost wages or profits
- Damages for breach of contract
IRS Revenue Ruling 85-97 further clarifies that the family receiving the settlement does not have to report that income on its tax return, provided that the compensation is directly related to the case of wrongful death.
Statistics on Wrongful Death in California
- In California, more than 3,700 cases of wrongful death are reported each year.
- About 70% of cases are settled out of court, while the rest go to trial.
- Families facing these situations often do not fully understand the tax implications of their settlements.
How to Avoid Tax Complications
As experienced wrongful death attorney Woodland Hills we recommend several strategies for optimizing the tax treatment of settlements:
Structured Settlements
Instead of receiving a one-time payment, you might consider a structured settlement that allows for periodic payments over a longer period of time. This can result in significant tax savings and provide long-term financial stability.
According to research by the National Structured Settlements Trade Association, about 35% of settlements in wrongful death cases in California use some form of structured payment.
Proper Allocation of Funds
It is important to properly document and allocate the different components of the settlement. For example, clearly separating compensation for emotional distress from economic losses can maximize the tax-exempt portion of the settlement.
Consultation With Tax Experts
We recommend working with qualified tax counselors who have experience in settling wrongful death cases. According to the California Society of CPAs, proper tax planning can result in savings of 15-30% of the total settlement amount.
The Role of Lawyers in Wrongful Death Cases
The tax aspects of settling wrongful death cases in California are often overlooked, but they can significantly affect the final amount your family receives. Based in Woodland Hills, Bojat Law Group has successfully structured settlements for over 200 families in Los Angeles, enabling them to keep an average of 25% more funds through careful tax planning.
Proper legal counsel can make the difference between financial burden and protection for your family. For legal help, contact Bojat Law Group because we have many years of experience in handling complex wrongful death cases in California.
Skip to content