TL;DR: A wrongful death claim creates legal proceeds that are typically not considered part of the deceased’s probate estate. This means the money is distributed directly to beneficiaries defined by state law, not according to the instructions in a will or trust. This separation protects the funds from the estate’s creditors and can have different tax implications. The estate’s personal representative is responsible for filing the claim, but they must act on behalf of these statutory beneficiaries, which can create complex duties if they differ from the heirs named in the will.

The loss of a family member is a deeply personal and difficult experience. When that loss is caused by the negligence or misconduct of another party, it introduces a layer of legal complexity through a wrongful death claim. In the United States, thousands of these claims are filed each year, seeking justice and financial stability for the surviving family members. These legal actions run parallel to the process of settling the deceased person’s final affairs.

While estate planning focuses on the orderly distribution of a person’s assets through documents like wills and trusts, a wrongful death lawsuit generates a new and distinct asset: the legal claim itself. The proceeds from this claim do not follow the same path as a bank account or a piece of real estate. Understanding how these two legal worlds interact is essential for personal representatives and beneficiaries. The rules governing wrongful death settlements can significantly alter who receives money and how it is managed, often in ways the deceased person never anticipated.

Understanding the Wrongful Death Claim and the Estate

At its core, a wrongful death claim is a type of civil lawsuit brought when one person’s death is caused by the wrongful act or negligence of another. It is fundamentally different from a criminal case, which is brought by the state to punish wrongdoing. Instead, a wrongful death action is designed to provide financial compensation to the surviving family members for the losses they have suffered due to the death.

What Constitutes a Wrongful Death Claim?

For a lawsuit to be successful, the filing party must prove several key elements. First, they must show that the defendant had a duty of care toward the deceased. For example, every driver has a duty to operate their vehicle safely. Second, they must prove the defendant breached that duty through a negligent or intentional act. Third, this breach must be the direct cause of the person’s death. Finally, the death must have resulted in quantifiable damages, such as lost income, loss of companionship, and funeral expenses.

Who Can File a Wrongful Death Lawsuit?

State laws dictate who has the legal standing to file a wrongful death claim. In most jurisdictions, the personal representative of the deceased’s estate (also known as an executor or administrator) is the party responsible for initiating the lawsuit. However, the personal representative does not act for their own benefit or even for the benefit of the estate itself. They file the claim on behalf of the specific beneficiaries designated by that state’s wrongful death statute. These beneficiaries are typically close relatives, such as a surviving spouse, children, or parents.

Distinguishing Wrongful Death from Survival Actions

A critical distinction exists between a wrongful death claim and a survival action. This difference has a massive impact on estate planning.

  • Wrongful Death Claim: Compensates the surviving family members for their own losses. This includes lost financial support, emotional distress, and loss of companionship. The money belongs to the beneficiaries directly.
  • Survival Action: Compensates the estate for the losses the deceased person experienced before they died. This can include their medical bills, lost wages before death, and pain and suffering. The money recovered from a survival action flows into the probate estate.

Because survival action proceeds become part of the estate, they are distributed according to the will (or state intestacy laws if there is no will) and are available to pay the decedent’s creditors. This is a primary reason why how a settlement is structured is so important.

How Wrongful Death Proceeds Are Distributed

One of the most significant ways a wrongful death claim affects estate planning is in the distribution of the settlement or jury award. Many people assume that any money related to a deceased person will be controlled by their will. In the case of a wrongful death settlement, this assumption is incorrect and can lead to serious confusion and conflict.

Bypassing the Probate Estate

Probate is the court-supervised process of validating a will, paying off debts, and distributing a deceased person’s assets. Assets that go through probate are called probate assets. A wrongful death award is generally not a probate asset. The legal theory is that the claim did not exist during the person’s lifetime; it was created at the moment of their death. Therefore, the proceeds belong to the surviving family members for the harm they suffered, not to the deceased person or their estate. This separation provides a powerful benefit: the funds are typically shielded from the claims of the decedent’s creditors.

Scenario Example: The Doctor’s Debts Imagine a surgeon dies in a plane crash caused by a mechanical failure. The surgeon had significant medical school loans and business debts. The family files a wrongful death lawsuit and receives a large settlement. Because these funds are for the spouse and children’s loss of support and companionship, the surgeon’s creditors cannot make a claim against the settlement money to satisfy the outstanding loans. If the money had gone into the estate, the creditors would have been paid first.

Identifying Statutory Beneficiaries

Since the will does not control the distribution, state law provides the instructions. Each state has a statute that lists the eligible beneficiaries in order of priority. This list almost always starts with the surviving spouse and children. If there are none, it may extend to parents, siblings, or other next of kin. This statutory framework can create situations that conflict with the deceased’s wishes.

For instance, a person might write a will leaving their entire estate to a lifelong partner to whom they were not married, or to a favorite charity. If that person dies in a situation leading to a wrongful death claim, the settlement proceeds would likely go to their distant children or parents as dictated by state law, completely bypassing the partner or charity named in the will.

The Limited Role of the Will and Trust

A will or living trust is the central document for distributing probate assets like bank accounts, real estate, and investments. These documents have no direct authority over the distribution of wrongful death proceeds. The personal representative named in the will is responsible for pursuing the claim, but they are legally bound to distribute the funds according to the wrongful death statute, not the will’s instructions. This places the personal representative in a position where they must follow two different sets of rules for two different pools of money.

The Personal Representative’s Dual Role and Responsibilities

The personal representative of an estate is a fiduciary, which means they have a legal duty to act in the best interests of the estate and its beneficiaries. When a wrongful death claim is involved, this role becomes significantly more complex. The personal representative must manage the probate process while simultaneously acting as the plaintiff in a major lawsuit on behalf of a separate group of statutory beneficiaries.

Appointment and Initial Duties

The personal representative is either nominated in the decedent’s will (an executor) or appointed by the probate court if there is no will (an administrator). Once officially appointed, their duties include gathering the decedent’s assets, notifying creditors, and managing the estate’s finances. If a potential wrongful death claim exists, one of their first and most critical tasks is to consult with a qualified experienced Georgia wrongful death attorney to evaluate the case and understand the statute of limitations for filing a lawsuit.

Fiduciary Duties in a Wrongful Death Case

In the context of the wrongful death claim, the personal representative’s fiduciary duty extends to the statutory beneficiaries. This includes:

  • Acting Prudently: Making reasonable decisions about the litigation, such as selecting a competent attorney and approving legal strategies.
  • Communicating Effectively: Keeping the statutory beneficiaries informed about the progress of the case, settlement offers, and important decisions.
  • Avoiding Conflicts of Interest: Acting impartially and solely for the benefit of the statutory beneficiaries, even if their interests conflict with the beneficiaries of the will.

This last point is where significant problems can arise.

Managing Potential Conflicts of Interest

A conflict of interest is common when the beneficiaries of the probate estate are different from the statutory beneficiaries of the wrongful death claim.

Case Study: A Family Divided An elderly man passes away due to medical malpractice. His will leaves his entire estate to his second wife. However, he has two adult children from a previous marriage. Under state law, the wrongful death beneficiaries are the surviving spouse and the children. The second wife is appointed as the personal representative.

In this role, she must pursue the wrongful death claim for the benefit of herself and her stepchildren, even though the stepchildren are not beneficiaries of the will. If a settlement is offered, she has a duty to negotiate a fair allocation of the proceeds among all three of them, as required by law. Her personal desire to maximize her own share cannot override her legal duty to the children. A court will typically need to approve the final allocation to ensure it is equitable.

Financial and Tax Implications for the Estate and Beneficiaries

The financial impact of a wrongful death settlement extends beyond the initial distribution. The way these funds are treated for tax purposes and how they are managed long-term are crucial considerations for both the estate and the beneficiaries. Understanding these rules can help preserve the value of the settlement and ensure it provides lasting financial security.

Are Wrongful Death Settlements Taxable?

For the beneficiaries, there is some good news. According to Section 104(a)(2) of the Internal Revenue Code, compensation received for personal physical injuries or physical sickness is generally not considered taxable income. The IRS extends this treatment to wrongful death settlements, as they arise from the physical injury that caused the death. This means the portion of the settlement intended to compensate for losses like lost wages, medical expenses, and loss of companionship is typically received by the beneficiaries tax-free.

However, there is a major exception: punitive damages. If a portion of the award is designated as punitive damages (meant to punish the defendant for egregious conduct), that amount is considered taxable income. It is vital for the settlement agreement to clearly allocate the funds between compensatory and punitive damages.

Impact on Estate Taxes

The federal estate tax applies only to very large estates (the exemption is over $13 million per person in 2024). For estates that are large enough to be subject to this tax, the distinction between wrongful death and survival action proceeds is critical.

  • Wrongful Death Proceeds: Since they are paid directly to beneficiaries and are not assets of the estate, these funds are generally not included in the decedent’s gross estate for estate tax purposes.
  • Survival Action Proceeds: Because these funds are paid to the estate to compensate for the decedent’s own pre-death suffering, they are included in the gross estate and can be subject to estate tax.

This provides another strong incentive for legal counsel to structure any settlement to maximize the allocation to the wrongful death claim.

Managing Large Settlements for Beneficiaries

Receiving a large sum of money can be a difficult experience, especially for those grieving a loss. Proper financial planning is essential. Beneficiaries may consider several options to manage the funds responsibly:

  • Structured Settlements: Instead of a single lump sum, the settlement is paid out over time as a series of guaranteed periodic payments. This provides a stable, long-term income stream.
  • Trusts for Minors: If a beneficiary is a minor, the court will require the money to be placed in a protected account or a trust until they reach the age of majority. A trust can provide more sophisticated management and distribution instructions.
  • Special Needs Trusts: If a beneficiary receives government benefits like Medicaid or SSI, a lump-sum settlement could disqualify them. A special needs trust can hold the settlement funds to supplement their needs without disrupting their eligibility for benefits.

The Legal Process: Integrating the Claim with Estate Administration

The administration of an estate and the litigation of a wrongful death claim are two separate legal processes that must be carefully coordinated. The timelines, court requirements, and rules for paying debts are different for each, requiring diligent management by the personal representative and their legal team.

The Timeline of a Wrongful Death Claim vs. Probate

The probate process often has a clear, statutorily defined timeline. Creditors are given a specific period to file claims, and estates can sometimes be settled in under a year. A wrongful death lawsuit, on the other hand, can be a lengthy process. It involves investigation, discovery, negotiations, and potentially a trial. It is not uncommon for these cases to take two to three years or even longer to resolve. Consequently, an estate involved in a wrongful death claim may need to be kept open until the lawsuit is concluded, especially if a survival action is also part of the claim.

Court Approval of Settlements

In nearly all jurisdictions, a wrongful death settlement must be approved by the court. This judicial oversight serves several important functions:

  • Protecting Beneficiaries: The court reviews the settlement amount to ensure it is fair and reasonable.
  • Approving Distribution: The court must approve the plan for allocating the settlement funds among the statutory beneficiaries. This is especially important when minors are involved or when there is disagreement among the beneficiaries.
  • Authorizing Fees: The court will approve the attorney’s fees and litigation costs to be paid from the settlement.

This court approval process provides a formal, legally binding conclusion to the claim and ensures the personal representative has fulfilled their fiduciary duties correctly.

Paying Creditors of the Estate

A primary function of probate is to ensure the decedent’s legitimate debts are paid before any assets are distributed to heirs. As discussed, creditors generally cannot access wrongful death proceeds because those funds do not belong to the estate. However, the funds from a survival action are a different story. Since survival action damages are paid to the estate, they become available to satisfy claims from creditors, including hospital bills, credit card debts, and other obligations.

Expert Tip: When settling a case that includes both a wrongful death and a survival action, it is highly advantageous to have the settlement agreement explicitly state how much money is allocated to each claim. This clarity helps shield the wrongful death portion from creditors and provides a clear record for tax and estate accounting purposes.

Proactive Estate Planning and Wrongful Death Considerations

No one can plan for a tragedy, but a well-constructed estate plan can provide clarity and reduce conflict if the unexpected happens. While you cannot specifically direct the outcome of a future wrongful death claim in your will, you can take steps to ensure your estate is managed by someone capable of handling such a complex situation.

Can You Plan for a Wrongful Death Scenario?

You cannot use a will or trust to change the list of statutory beneficiaries for a wrongful death claim. That list is set by state law. However, you can create a plan that gives your chosen fiduciaries the tools and guidance they need to manage a complicated administration. For example, your estate plan can establish testamentary trusts that could later be used to hold and manage settlement proceeds for your children or other beneficiaries, providing more protection and control than a simple outright distribution.

The Importance of a Well-Drafted Will and Trust

A clear, unambiguous will is always important. It ensures your probate assets are distributed according to your wishes and minimizes the potential for disputes among heirs. When a wrongful death claim is involved, the clarity of your will becomes even more valuable. It helps the personal representative easily distinguish which assets are controlled by the will and which are part of the separate wrongful death action, streamlining the administration process.

Choosing Your Personal Representative Wisely

Perhaps the most critical proactive step you can take is to carefully select the person you nominate as your personal representative or executor. This person should not only be trustworthy but also organized, financially responsible, and emotionally capable of handling a difficult situation. Consider nominating someone who can act impartially and communicate effectively, especially if there is potential for conflict between family members. Naming a professional fiduciary or a corporate trustee is another option for those with complex family or financial situations.

Conclusion

The intersection of a wrongful death claim and estate administration introduces legal and financial challenges that go far beyond a standard probate process. The central takeaway is that proceeds from a wrongful death lawsuit are not estate assets; they are designated for statutory beneficiaries and are distributed outside the control of a will or trust. This unique status provides significant protection from creditors and favorable tax treatment but requires careful management by the estate’s personal representative. They must balance their duties to the estate with their responsibilities to the beneficiaries of the legal claim, a task that demands diligence and a clear understanding of the law.

For any family or personal representative facing this situation, seeking guidance from qualified professionals is not just recommended; it is essential. A collaboration between an experienced personal injury attorney who can maximize the value of the claim and a knowledgeable estate administration lawyer who can manage the probate process is the best way to honor the deceased’s legacy and secure the financial future of the surviving family members. Taking prompt action to consult with legal experts will provide the clarity and direction needed to make sound decisions during a difficult time. Contact us for free consultation today.