A wrongful-death settlement is rarely handed to one family member as a single unrestricted check. The payment normally passes through a formal legal process designed to identify the proper beneficiaries, pay required expenses and determine how much each eligible survivor should receive.
The exact procedure depends on state law. In many states, the deceased person’s personal representative brings the claim for the benefit of surviving family members and, in some cases, the estate. Florida law, for example, requires the personal representative to pursue recovery for the decedent’s survivors and estate.
Who Receives the Settlement Check First?
After the settlement agreement is signed and any necessary court approval is obtained, the insurance company or defendant normally issues the settlement check to the law firm, the personal representative or both.
When a lawyer handles the case, the money is generally placed in a client trust account. The lawyer must allow the funds to clear and then prepare a settlement statement showing the gross recovery, attorney fee, legal expenses, liens and amount available for distribution.
Contingency-fee rules generally require the lawyer to give the client a written statement explaining the recovery and how the final payment was calculated. Lawyers must also promptly distribute funds that the client or another entitled person has a right to receive.
What Is Deducted Before the Family Is Paid?
Several amounts may be taken from the gross settlement before the beneficiaries receive their shares.
Common deductions include:
- Attorney fees;
- Court and litigation expenses;
- Expert-witness fees;
- Medical bills related to the final injury;
- Hospital or health-insurance liens;
- Medicare or Medicaid reimbursement;
- Funeral expenses; and
- Costs of administering the estate.
When Medicare paid medical expenses connected with the fatal injury, it may seek repayment from the settlement. CMS generally issues a demand identifying the amount owed after learning about the settlement.
State law may determine how legal expenses are divided. Florida, for example, provides that attorney fees and litigation costs are deducted proportionately from the amounts awarded to survivors and the estate, unless an expense was incurred specifically for one beneficiary or for the estate.
Who Is Entitled to the Remaining Money?
Eligible beneficiaries are determined by the wrongful-death statute of the state where the claim is filed. They may include a surviving spouse, children, parents or other relatives who were financially dependent on the deceased.
The deceased person’s will does not necessarily decide who receives wrongful-death proceeds. These damages are often distributed under the state’s wrongful-death law rather than according to ordinary inheritance instructions.
The personal representative may manage the claim, but that does not mean the representative personally receives the entire settlement. The representative acts on behalf of the people legally entitled to benefit.
Is the Settlement Divided Equally?
Not necessarily. The family may agree on a division, or the court may allocate the settlement based on each survivor’s legally recognized loss.
Factors may include:
- The survivor’s relationship with the deceased;
- Lost financial support;
- Loss of household services;
- The survivor’s age and dependency;
- Loss of companionship or guidance;
- Funeral or medical expenses paid by a survivor; and
- The damages permitted by the applicable state law.
Florida law allows individual survivors to recover losses such as support and services, with the calculation considering the relationship between the survivor and the deceased.
New York provides another example. Wrongful-death proceeds are distributed among qualifying family members according to the financial injuries each suffered, and a court may determine the proper proportions after a hearing.
Therefore, a surviving spouse and two adult children may not automatically receive one-third each. The allocation depends on state law, the evidence and any agreement approved by the court.
What Is the Difference Between Wrongful-Death and Estate Proceeds?
A case may contain both a wrongful-death claim and a survival claim.
Wrongful-death damages generally compensate surviving family members for losses caused by the death, such as lost support, services and companionship.
A survival claim generally covers losses the deceased person experienced between the injury and death. Depending on state law, this may include medical expenses, lost wages and conscious pain and suffering.
The survival portion may be paid to the estate and distributed through probate. It may therefore be treated differently from the portion paid directly for the beneficiaries’ wrongful-death losses. Estate debts and inheritance rules may affect the survival portion, while the wrongful-death portion may follow a separate statutory distribution system.
Is Court Approval Required?
Court approval may be necessary when beneficiaries disagree about the division or when a beneficiary is a minor or legally incapacitated.
Florida law provides that a settlement affecting a minor or incapacitated survivor, or one whose allocation is challenged by another survivor, is not effective without court approval.
A court may also appoint a guardian ad litem to review whether the settlement protects a minor’s interests. The child’s money may be placed in a restricted account, guardianship account, trust or structured settlement rather than being paid directly to a parent.
Can the Settlement Be Paid Over Time?
Yes. A wrongful-death settlement may be paid as a lump sum, through periodic structured-settlement payments or through a combination of both.
A lump-sum settlement provides the available net proceeds at one time. A structured settlement provides scheduled payments over a period of years and may be useful for minor children, beneficiaries who need long-term income or families concerned about preserving the money.
The payment structure should be established before the final release is signed. Changing it after the defendant has issued the settlement may be difficult.
Are Wrongful-Death Settlements Taxable?
Compensatory damages paid because of a personal physical injury or physical sickness are generally excluded from federal taxable income. This exclusion can apply whether the settlement is paid as a lump sum or through periodic payments.
However, punitive damages and interest are generally taxable. An exception may apply in a wrongful-death case where state law permits only punitive damages. The tax result depends on what each part of the settlement was intended to compensate.
The settlement agreement should clearly allocate the payment among compensatory damages, punitive damages and interest rather than describing the recovery only as one total amount.
The Bottom Line
A wrongful-death settlement is normally paid first to the attorney or personal representative, placed in a trust account and reduced by attorney fees, case costs and valid medical or government liens.
The remaining funds are then divided among legally eligible beneficiaries according to state law, a family agreement or a court order. The shares are not always equal, and court approval may be required when minors, incapacitated beneficiaries or family disputes are involved.
