- Written By Rachel Christian
Writer & Researcher
Rachel Christian is a Certified Educator in Personal Finance with FinCert, a division of the Institute for Financial Literacy. She is committed to promoting financial literacy and making complex financial topics accessible to readers from all walks of life.Read More
- Reviewed By Roger Wohlner
- Updated: May 8, 2023
- This page features 5 Cited Research Articles
According to the Centers for Disease Control and Prevention, there were more than 161,000 unintentional injury deaths in 2016. This ranked as the third highest cause of death in the country.
When a plaintiff agrees to settle a wrongful death lawsuit, they may receive their compensation as a lump sum or as a structured settlement. Structured settlements are the courts’ preferred method of distribution because plaintiffs are less likely to mismanage funds dispersed as a series of smaller payments. Under the law, however, both payment structures are tax-free in wrongful death cases.
Structured settlements are appropriate in a number of situations. For example, when a child loses a parent, a structured settlement covers living expenses that would have been paid by the parent. And after the loss of a husband or wife, the surviving spouse can rely on a structured settlement for the financial support they have lost.
You Can Sell Your Wrongful Death Settlement
The downside of structured settlements is that those who were dependent on the deceased don’t have access to the entire settlement amount. So it can be difficult to meet pressing financial needs.
If you are facing an unexpected expense and don’t have enough money in your emergency fund to cover it, you may consider selling some or all of your structured settlement payments in exchange for a lump sum.
As with all financial decisions, you must be diligent about weighing the benefits and drawbacks of selling your settlement payments. Consider your future income needs and how you will meet them without these regular payments.
And, because structured settlement sales require court approval, be prepared to make your case to the judge. Depending on where you live, you may or may not have to appear in court. If you do, don’t let the process intimidate you. The judge’s primary concern is your well-being and, if you are responsible for providing for a minor, the well-being of the child in your care.
With that in mind, think about your long-term needs and why your settlement was structured to pay out incrementally. This exercise allows you to make this decision with confidence.
What Was the Basis of Your Settlement?
Wrongful death cases are filed in a variety of circumstances. These include traffic accidents, deaths caused by hazardous conditions, medical malpractice and other situations where someone’s death could have been avoided if another person or company had acted responsibly.
Wrongful death statutes in the United States vary by state, and the amount you and your attorney negotiated was based on a calculation of your financial loss as well as pain and suffering. This calculation typically includes the future financial support the deceased would have provided had he or she lived, funeral expenses, a monetary value of household responsibilities that were handled by the deceased, and any additional benefits you would have received from him or her over the course of your lives.
When negotiating your settlement, your attorney estimated your total economic losses to arrive at the amount you received and a judge approved it. This number isn’t arbitrary, and chances are you still have many of the financial obligations that your settlement money was intended to cover.
If you sell, you will need a strategy for replacing that income stream. Ask yourself:
- How will I pay my mortgage or rent?
- How will I pay my or my dependents’ medical bills?
- How will I save for retirement?
Once you have answered these questions honestly and determined that your need for liquidity outweighs the benefits of your settlement payments, you can cash them out and put the money toward whatever urgent financial matter you’re facing.
Should You Sell Your Wrongful Death Settlement?
After losing a loved one, many people look for new meaning in their lives. And although a wrongful death structured settlement is intended to compensate for the surviving family member’s financial loss — which is why the IRS excludes compensatory damages from gross income — you may have a sound financial strategy that addresses your future expenses.
Perhaps you were not completely financially dependent upon your loved one. If you are employed, have your own health insurance and are relatively debt-free, you may not need the guaranteed monthly payments from your settlement.
And if you have a high level of financial literacy, an emergency fund and a trusted financial advisor, selling all or a portion of your payments can give you the means to build your future around a new purpose.
Your settlement most likely takes the form of an annuity. In these cases, annuities are classified as “qualified funding assets” and are tax-free. This is important to know because once you sell your settlement, the money no longer qualifies for tax-free treatment from the IRS.
A reputable purchasing company will walk you through the process of selling your settlement, but don’t go into any deal without a solid understanding of what you’re agreeing to when you accept an offer.
You’ve already suffered a tragedy that no amount of money can make up for. Protect yourself from further loss by considering alternatives for managing your expenses and researching settlement buyers. It’s inevitable that you will forfeit some of your settlement value when you sell, but the offer you accept should be reasonable.
5 Cited Research Articles
- Centers for Disease Control and Prevention. (2017, March 17). Accidents or Unintentional Injuries. Retrieved from https://www.cdc.gov/nchs/fastats/accidental-injury.htm
- Cornell Law School. (n.d.). 26 U.S. Code § 5891.Structured settlement factoring transactions. Retrieved from https://www.law.cornell.edu/uscode/text/26/5891
- Internal Revenue Service. (2019, March). Excise Tax on Structured Settlement Factoring Transactions Audit Technique Guide. Retrieved from https://www.irs.gov/pub/irs-mssp/structured_settlement_factoring.pdf
- Internal Revenue Service. (2011, May). Lawsuits, Awards, and Settlements Audit Techniques Guide. Retrieved from https://www.irs.gov/pub/irs-utl/lawsuitesawardssettlements.pdf
- Lott, S. (2017, January 26). Finding New Meaning in Your Living After a Loved One Dies. Retrieved from https://www.goodtherapy.org/blog/finding-new-meaning-in-your-living-after-loved-one-dies-0126175