surviving spouse wants to bring a claim on behalf of her deceased husband and wants to know if proceeds from a verdict will be taxed to the estate whereby further reducing what she gets. I told her no, but i'm not sure. Anyone know the correct answer and possibly the law law to cite? Also, I need a PI attorney to refer it to in California.

If the claim involves a tort claims it should be exempt from tax liability, depends on the claim the wife is making.

Thats right, tort claims or pain & suffering claims are not part of the estate, rather they are claims of the beneficiaries. If the claim was for lost wages or lost property then it would be added to the estate and subject to income tax....i think. Talk to a CPA though.

Also, be aware that if a suit is brought, the executor of the estate will need to open a probate estate to collect the proceeds.

Ask the moderator Steve, but the settlement may be added to the estate and cause estate tax issues for the beneficiaries in addition to income tax issues.

Jackie is right. Proceeds from a lawsuit will probably become an asset of the estate. Check with the attorney & CPA handling the administration to see if an estate tax return needs to be filed.

Dont forget that estate tax returns are due 9 months after date of death. The estate can file an extension to gain an additional 6 months to file the return, but the tax is due on the 9 month anniversay (unless the estate qualifies for installment payments).

If the lawsuit proceeds are expected after the 9 month deadline, then I would file the estate tax return anyway and &quot;amend&quot; the return with supplemental information once the law suit settlement is realized. This way you aviod the late filing penalty if you later determine that you needed to file an estate tax return.<br><br>Post edited by: steve, at: 2008/04/23 02:44

How significant are these penalities and interest is the estate tax return is not filed within the prescribed time period?