The proceeds of a wrongful death action can be taxed by the NJ Division of Taxation. Care must be taken in structuring settlement agreements to reduce the overall tax if possible.
“Under New Jersey law, a decedent’s wrongful death provides two separate causes of action: one on behalf of the beneficiaries (a wrongful death claim action) under N.J.S.A. 2A:31-1 to -6, and one on behalf of the estate (a survival claim action) under N.J.S.A. 2A:15-3. The parties agree that the wrongful death claim action is not includible in the decedent’s gross estate, whereas the survival claim action is an asset of the decedent and includible in the estate. Therefore, the former is not subject to the New Jersey estate tax, but the latter is so subject.”
On March 4, 2014, the Decedent, a New Jersey resident, died after a utility company triggered a natural gas explosion outside her home. Plaintiff filed a wrongful death claim action and a survival claim action lawsuit in the New Jersey Superior Court, as executor of decedent’s estate.
About 2 years later, the parties settled all claims for $20,000,000. The estate received $6,709,231.08 on December 5, 2017 representing its recovery from the survival claim action.
Plaintiff hired a valuation expert to offer an opinion as to the value of the survival claim as of March 4, 2014, the Decedent’s date of death. The expert placed the value at $2,690,600.
The Tax Issue
The issue in the case was whether the ultimate recovery should be included in the estate for tax purposes at the full value of the recovery or at a value that takes into account discounts for various risks and timing associated with the litigation.
Ultimately, the Tax Court sided with the Division of Taxation in holding that the full value of the recovery is includable in the Decedent’s estate.