Wrongful Death Structured Settlements: Your Rights and Options

If you or your family received a structured settlement from a wrongful death claim, you may be wondering whether you can sell those payments for a lump sum. The short answer is yes. These settlements are generally tax-free under IRC 104(a)(2), and surviving family members can sell some or all of their future payments through a court-approved process.

What Is a Wrongful Death Structured Settlement?

A wrongful death structured settlement is a financial arrangement where the defendant (or their insurer) agrees to pay surviving family members periodic payments over time, rather than a single lump sum, to resolve a wrongful death claim.

Wrongful death claims arise when a person dies due to another party's negligence, recklessness, or intentional act. Common causes include auto accidents, medical malpractice, workplace incidents, and product liability. The right to file a wrongful death claim typically belongs to the surviving spouse, children, parents, or an estate representative, though eligibility varies by state.

Structured settlements provide long-term financial security through guaranteed periodic payments. The settlement is funded by purchasing an annuity from a life insurance company such as MetLife, Allstate/Everlake, John Hancock, or Corebridge. The insurance company issues the annuity and delivers payments directly to the beneficiaries according to the schedule established during the underlying litigation, often with court supervision. The National Structured Settlements Trade Association (NSSTA) provides industry resources and consumer information about structured settlements.

For a broader explanation of how structured settlements work, see our guide on what a structured settlement is.

How Wrongful Death Settlements Differ from Other Structured Settlements

While wrongful death structured settlements follow the same legal framework as other structured settlements, several features distinguish them from standard personal injury arrangements.

Multiple beneficiaries. Wrongful death settlements often distribute payments among several family members. A surviving spouse, children, and parents may each receive separate payment streams with different amounts, schedules, and terms. Each payment stream is treated as an independent obligation by the issuing insurance company.

Court oversight of the original settlement. Many states require court approval of the wrongful death settlement itself, particularly when minor children are among the beneficiaries. This layer of judicial review exists before any future sale of payments is considered.

Damages types. Wrongful death damages typically cover loss of financial support, loss of companionship and consortium, funeral and burial expenses, and pain and suffering of the deceased before death. The composition of these damages can affect the tax treatment of the payments.

Life contingent vs. guaranteed payments. Payments may be structured as life contingent (ending at the recipient's death) or guaranteed for a specific period. The structure depends on the settlement agreement and the needs of the beneficiaries. Learn more about life contingent payments and how they differ from guaranteed payments.

Minor beneficiaries. When children receive wrongful death settlements, courts often require structured settlements to protect the funds until the child turns 18. These settlements may include deferred lump sums at milestone ages. For more on this topic, see our guide on structured settlements for minors.

The key similarity is that wrongful death structured settlements follow the same legal framework as other structured settlements. They can be sold, transferred, and are subject to the same state SSPA court approval process.

Tax Treatment of Wrongful Death Settlements Under IRC 104(a)(2)

Wrongful death structured settlement payments are generally tax-free under Internal Revenue Code Section 104(a)(2), which excludes damages received "on account of personal physical injuries or physical sickness" from gross income. This is one of the biggest financial advantages of a wrongful death structured settlement.

The IRC 104(a)(2) exclusion applies to the full payment stream, including all future payments, not just the initial settlement amount. Both the original recipient and beneficiaries who inherit guaranteed payments receive the same tax-free treatment.

If you sell your payments, the lump sum you receive is also tax-free. The tax exclusion survives a factoring transaction under IRC 5891(d). This has been confirmed by IRS Private Letter Ruling 200918001 and the IRS Audit Technique Guide (2019). For a deeper analysis, see our guide on structured settlement tax implications.

There are two important exceptions to be aware of:

• Punitive damages. If any portion of a wrongful death settlement includes punitive damages, that portion is taxable as ordinary income, even when structured as periodic payments. Punitive damages are designed to punish the defendant rather than compensate for physical injury, so they fall outside the IRC 104(a)(2) exclusion.
• Emotional distress without physical injury. If any portion of the settlement compensates for emotional distress that is not tied to a physical injury or physical sickness, that portion may be taxable. This distinction matters in wrongful death cases where emotional distress damages are sometimes itemized separately from physical injury damages.

The IRS provides general guidance on the tax treatment of lawsuit settlements in Publication 4345. Because wrongful death tax situations can involve multiple damage categories, consulting a tax professional about your specific settlement is advisable.

Can You Sell a Wrongful Death Structured Settlement?

Yes. Surviving family members who receive wrongful death structured settlement payments can sell some or all of their future payments for a lump sum of cash, subject to court approval under their state's Structured Settlement Protection Act (SSPA).

The selling process follows the same steps as any structured settlement transfer: file a petition with the court, demonstrate that the sale is in your best interest, and receive judicial approval. Most states require consultation with an independent professional advisor (IPA) before the sale can proceed. For a step-by-step walkthrough, see our guide on how to sell a structured settlement.

Each beneficiary who received a separate payment stream can independently decide whether to sell. If a wrongful death settlement distributed payments to a surviving spouse, two adult children, and a parent, each recipient controls their own payment stream. One family member's decision to sell does not affect the others' payments.

Partial sales are available. You do not have to sell all your payments. You can sell a block of payments from a specific time period, reduce your monthly amount, or sell only certain scheduled lump sums while keeping the rest. Many wrongful death settlement recipients choose partial sales to address an immediate financial need while preserving long-term income.

Judges may apply additional scrutiny to wrongful death settlement transfers, particularly if the original settlement was designed to provide long-term support for dependents or if minor children are involved.

Court Approval Process for Wrongful Death Settlement Transfers

Every structured settlement sale requires court approval under the state's Structured Settlement Protection Act (SSPA). The process includes specific steps designed to protect the seller:

1. Notice to the annuity issuer. The purchasing company must provide advance notice (typically 10 days) to the insurance company that issued the annuity, giving them the opportunity to respond.
2. Independent professional advice. Most states require the seller to be advised of their right to seek independent professional advice (IPA) from a financial advisor or attorney before the transaction is finalized.
3. Court hearing. A judge reviews the transaction at a formal hearing. The buyer's attorney presents the terms, and the judge evaluates whether the sale meets the "best interest" standard.

For wrongful death settlements specifically, judges consider additional factors beyond the standard review:

• Are minor children still depending on the payment stream for financial support?
• Was the settlement specifically structured to replace the deceased's income for surviving dependents?
• Does selling the payments create financial hardship for other family members who are not part of the sale?

The timeline from petition filing to court approval is typically 30 to 60 days, depending on the state's court scheduling. CSF's attorneys handle all paperwork, court filings, and legal proceedings. For details on what to expect at the hearing, see our guide on the structured settlement court hearing process.

What Happens to Wrongful Death Payments When the Recipient Dies

What happens to a wrongful death structured settlement after the recipient's death depends on how the payments were originally structured:

• Guaranteed (period certain) payments continue to the designated beneficiary for the remaining guarantee period. If a settlement guarantees 20 years of payments and the recipient dies after 12 years, the named beneficiary receives the remaining 8 years of payments.
• Life contingent payments stop at the recipient's death. These payments are tied to the recipient's lifespan and carry no guarantee beyond that. Learn more about life contingent payments.
• Commutation riders may allow the remaining value of the payment stream to be paid as a lump sum to the beneficiary upon the recipient's death.
• No beneficiary named. If the recipient did not designate a beneficiary, guaranteed payments may enter the recipient's estate and go through probate, which can delay distribution for months or longer.

Reviewing and updating beneficiary designations regularly is one of the most important steps a wrongful death settlement recipient can take. For more on this topic, see our guide on what happens to a structured settlement after death.

How CSF Handles Wrongful Death Settlement Transfers

Losing a family member creates both emotional and financial challenges. We see families in this situation dealing with medical bills, funeral costs, and lost income all at once. When surviving family members need to access the value of their wrongful death structured settlement, CSF provides a respectful, professional process built on 15 years of experience handling structured settlement transfers.

CSF's legal team manages the entire court approval process, from preparing the petition to representing the transaction at the hearing. Every quote is free, confidential, and carries no obligation. Partial sales are available for recipients who want to address an immediate need while preserving some long-term income security.

The amount CSF quotes is the amount you receive. CSF's attorneys are licensed in multiple states and experienced with the specific requirements of wrongful death settlement transfers, including cases involving multiple beneficiaries and minor dependents.

If you received a wrongful death structured settlement and are considering your options, call (800) 317-3769 for a free, confidential quote. You can also use the structured settlement calculator to estimate the present value of your payments, or request a quote online.

Frequently Asked Questions

Are wrongful death structured settlement payments taxable?

Wrongful death structured settlement payments are generally tax-free under IRC Section 104(a)(2), which excludes damages received on account of personal physical injuries from gross income. This exclusion applies to the full payment stream. That said, any punitive damages portion of the settlement is taxable. Consult a tax professional for your specific situation.

Can I sell my wrongful death structured settlement?

Yes. You can sell some or all of your wrongful death structured settlement payments for a lump sum of cash. The sale requires court approval under your state's Structured Settlement Protection Act. CSF handles the entire process, including all paperwork and court filings.

How long does it take to sell wrongful death settlement payments?

The process typically takes 30 to 60 days from the initial quote to receiving your lump sum. The timeline depends on your state's court scheduling and SSPA requirements. CSF's legal team works to keep the process as efficient as possible.

Do I have to sell all of my wrongful death settlement payments?

No. You can sell a portion of your payments while keeping the rest. Options include selling a block of future payments (for example, 5 years of payments), reducing your monthly payment amount, or selling only the life contingent portion while keeping guaranteed payments.

Will selling my wrongful death settlement affect my taxes?

If your original wrongful death settlement payments were tax-free under IRC 104(a)(2), the lump sum you receive from selling those payments is also tax-free. The tax exclusion survives the transfer. Consult a tax professional for advice specific to your situation.

What does a judge consider when approving a wrongful death settlement sale?

The judge applies a "best interest" standard, considering factors like your current financial needs, whether you have other income sources, the discount rate applied, and whether the sale would create hardship for dependents. For wrongful death settlements, judges may also consider whether minor children rely on the payments for support.

Can multiple family members sell their wrongful death settlement payments independently?

Yes. If the original wrongful death settlement distributed separate payment streams to multiple family members, each recipient can independently decide whether to sell their payments. Each sale requires its own court petition and approval.