Kiddie Tax Risk on Personal Injury Settlements

Kiddie Tax Risk on Personal Injury Settlements

Among the many positive reasons parents, courts and plaintiff attorneys choose structured settlements when settling a minor’s injury claim, one of the most overlooked is the fact that it can shield the minor’s recovery from the dreaded Kiddie Tax.

Faster than a child can grow from cradle to car keys, the Kiddie Tax can sneak up on those unprepared for it.  An article by “TaxMama” Eva Rosenberg appeared in today’s MarketWatch which highlights how problematic this tax can be.  (“Kiddie tax laws could cost you at tax time”)

Originally designed to target a small number of taxpayers who were circumventing tax laws by shifting assets into their children’s names, Kiddie Tax can be the bane of an otherwise meaningful personal injury settlement if not considered prior to finalizing the recovery.

When settling personal injury claims, this tax can easily be minimized or eliminated altogether if a properly designed structured settlement is crafted prior to securing court approval for the settlement.  Structured settlement proceeds, which flow to the recipient 100% income tax-free if the result of a personal, physical injury, can be tailored to meet specific, anticipated future needs.  And to avoid saddling the minor with an unnecessary tax burden.

A structured settlement is not always the best option for a minor settling an injury settlement.  But anyone who goes to court without first considering the impact of ALL taxes, in addition to rate of return and security, could unintentionally cost the minor money.

Best advice?  Have a minor’s settlement properly evaluated by an expert specializing in structured settlements prior to concluding the file.  I welcome the opportunity to assist.  Call anytime I can help.

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