Losing a loved one in a wrongful death accident is emotionally devastating. Amid the grief, families often face complex legal and financial decisions. One such critical question is: “Is a wrongful death settlement taxable in Charleston, South Carolina?” Understanding how taxes apply to wrongful death settlements can help grieving families make informed decisions, especially when preparing for the future.
In this article, we’ll break down how wrongful death settlements are treated under federal and South Carolina tax laws, what parts of a settlement may or may not be considered taxable income, and what steps you can take to protect your interests.
What Is a Wrongful Death Settlement?
A wrongful death settlement is financial compensation awarded to surviving family members or dependents of a deceased person who died due to a negligent party’s actions or intentional misconduct. In South Carolina, wrongful death lawsuits can cover a wide range of economic and non-economic damages, including:
- Medical expenses incurred before death
- Funeral expenses and burial expenses
- Loss of future income and benefits the deceased would have provided
- Mental anguish, grief, and loss of companionship
- Pain and suffering of the decedent (via a survival action)
Settlements may be reached out of court or awarded through a civil lawsuit.
South Carolina Wrongful Death Laws: A Quick Overview
Under South Carolina Code § 15-51-10, a wrongful death action must be filed by the executor or administrator of the estate plan of the deceased person, but it benefits the spouse, children, parents, or heirs.
South Carolina allows for both:
- Wrongful death claims, compensating the family
- Survival actions, compensating the estate for the decedent’s physical pain and suffering
This legal distinction matters, especially when evaluating taxable income within a personal injury claim or wrongful death lawsuit.
Are Wrongful Death Settlements Taxable Under Federal Law?
Non-Taxable Components:
- Damages received for physical injuries or physical sickness
- Emotional distress damages directly related to physical injuries
- Medical expenses or funeral costs reimbursed by the settlement
Potentially Taxable Components:
- Punitive damages: Meant to punish the liable party, not compensate survivors
- Interest on settlement: If awarded, it’s generally treated as taxable income
How South Carolina Treats Wrongful Death Settlements for Tax Purposes
South Carolina’s tax rules generally mirror federal standards:
- Compensatory damages are not taxed
- Punitive damages and interest are taxable under South Carolina law
The risk arises when settlements lack an itemized breakdown, potentially triggering unnecessary taxation on a larger portion.
What Parts of a Settlement Could Be Taxable?
| Component | Taxable? | Notes |
| Medical bills | No | If reimbursed via settlement |
| Funeral expenses | No | Non-taxable if reimbursed |
| Loss of financial support | No | Considered compensatory |
| Mental anguish/Emotional distress(from physical injury) | No | Must be tied to physical injury |
| Pain and suffering(decedent) | No | Paid viasurvival claim |
| Punitive damages | Yes | Taxable under federal and SC law |
| Interest on settlement | Yes | Consideredtaxable income |
The Importance of Structuring the Settlement
The best way to avoid a tax burden is to structure your wrongful death settlement properly:
- Use an itemized breakdown of compensatory damages vs. punitive damages
- Clearly identify each recipient of financial compensation
- Include legal documentation explaining each amount’s purpose
A knowledgeable wrongful death attorney or personal injury attorney can collaborate with a tax professional to ensure the settlement avoids misclassification by the IRS.
Will the IRS Audit a Wrongful Death Settlement?
Though rare, an audit may happen if:
- The settlement amount is unusually large
- There’s no clear breakdown of damages
- There’s suspicion of tax avoidance
Be prepared by keeping:
- All legal representation documentation
- Records of medical costs, funeral expenses, and estate administration
- Communication from insurance companies and the law firm handling the case
How Are Settlement Funds Distributed?
In South Carolina, wrongful death settlements are distributed per intestate succession laws if there’s no will:
- If there’s a spouse and children, they share the settlement
- If only a spouse survives, they may receive all
- If no spouse or children, parents or other relatives may be eligible
Keep in mind: Interest income and punitive damages are taxable to each beneficiary who receives them.
Special Considerations for Minor Beneficiaries
When a minor is involved:
- The court may appoint a guardian ad litem
- A family court may approve the settlement
- Funds may be placed in a trust or restricted account until adulthood
These funds follow the same tax guidelines, but their handling is more tightly regulated.
What If the Case Goes to Trial?
In court, a jury verdict typically assigns itemized awards, making tax handling easier. In contrast, out-of-court settlements should still include itemization to avoid ambiguity around taxable income.
Are Legal Fees Tax-Deductible?
Typically, legal fees are not deductible by the beneficiary in wrongful death lawsuits. In rare, business-related claims, exceptions might apply, but consult a tax advisor before filing your tax return.
Final Thoughts
So, is a wrongful death settlement taxable in Charleston, SC?
- Most compensatory damages are not taxable, including emotional pain, medical expenses, and loss of income.
- Punitive damages and interest are taxable under both federal and South Carolina tax law.
Ensure you work with experienced attorneys and tax advisors to receive fair compensation, without added tax consequences.
Need Legal Help After a Tragic Loss?
At Ted Law Firm, our compassionate wrongful death lawyers in Charleston are ready to guide you through this difficult time. Whether you’re pursuing a wrongful death action or evaluating your personal injury claim, we’ll help you protect your rights and financial future. Ted Law Firm proudly serves clients throughout Aiken, Greenville, Columbia, Myrtle Beach, and Atlanta,supporting individuals and families across South Carolina and Georgia. We are committed to providing trustworthy legal advice when it matters most.
Contact Ted Law Firm today for a free consultation.
Attorney Ted Sink, founder of The Ted Law Firm, is a Yale, Stanford Business School, and Charleston School of Law graduate and former marketing executive who built a 7-figure law practice, earning millions for his clients. With experience in both law and advertising, Ted has been recognized in Forbes, Entrepreneur, and the ABA Journal. He speaks at industry conferences on marketing and law firm management, sharing insights from his unique background to help other firms grow. When not working, Ted enjoys traveling, diving, and dog-sitting golden retrievers.
