I was recently speaking with a client whose husband had passed away with a pending personal injury lawsuit resulting from a car accident. This client had some questions regarding the estate settlement and how does this affect the estate settlement process.
First, a personal injury or wrongful death settlement is an asset that needs to be administered through the estate settlement process. If the estate is being administered through the probate administration process (the person died with a will or without a will), there may be some issues with how quickly the probate estate can be administered with a pending personal injury or wrongful death action. In some instances, it can result in the probate administration being put on hold until the personal injury or wrongful death action reaches its conclusion. If it is through a Revocable or Irrevocable Trust, then the inheritance will be delayed, of course, until that personal injury or wrongful death action reaches its completion.
Second, the potential personal injury action could result in unforeseen federal estate taxes coming due. For example, let’s say that a loved one passes away with a $1.5 million estate, but they have a pending personal injury action that results in a $5 million judgment. Suddenly, it turned a $1.5 million estate into a $6.5 million estate with $1.05 million becoming subject to the federal estate tax (which carries a top tax rate of 40%).
Finally, a personal injury award being included in an estate settlement will trigger potential money management issues for the heirs and loved ones who just inherited a large sum of money. For these situations, we recommend our clients to seek out a qualified and experienced financial planner to assist them with their money management needs and a solid investment strategy moving forward.
Anytime you have an estate settlement which includes a pending personal injury or wrongful death action, there are additional issues and considerations that will need to be addressed. For these reasons, it is always important to seek out the advice of competent and experienced legal counsel for your legal and tax planning needs.
However, before you meet with any attorney, you should have a list of questions and items to discuss with the attorney, including your family’s wealth transfer strategy and goals.
If you have questions regarding estate planning and family wealth transfer planning, then I encourage you to download one of our Free Books on Family Wealth Transfer Planning to the left of the screen. If you are ready to schedule your Family Wealth Transfer Planning Meeting, please contact our office at (615) 490-0477.
As always, we are here to help!