- Special Needs Alliance - https://www.specialneedsalliance.org -

Tax Considerations in Personal Injury Settlements

The Special Needs Alliance asked Jeremy Babener to summarize a presentation on tax issues in personal injury cases that he made at the Society of Settlement Planners Annual Meeting in Las Vegas on May 6. Babener is a tax attorney at Lane Powell PC and regularly advises on tax issues relating to lawsuits, structured settlements and qualified settlement funds. You can find his bio and a list of his articles and bio here [1].

Personal injury claimants have many things to think about before settling a case [2]. It often makes sense for claimants to prioritize non-tax over tax objectives (e.g., maintaining government benefits or avoiding premature dissipation). However, claimants should understand the tax consequences of their choices, and their advisors should ensure that they obtain any tax benefits that are available to them in light of their ultimate decisions.

Following are a few points that advisors to claimants sometimes miss when drafting settlement agreements:

Following are a few types of tax that advisors may miss when they are considering the impact of a lump sum versus a structured settlement:

No time in a case is too early to be thinking about tax consequences. Even the selection of claims alleged in a demand letter or complaint can place a claimant in a better or worse position tax-wise.