Inherited class action settlement?


J

Jim H

Daughter has received a cash settlement (about $20K)
resulting from a class action lawsuit. The twist is that
the award was to Mom. Shortly after the settlement Mom
passed away. The court sent the daughter a check in
daughter's name, along with a 1099. The daughter was never a
party to the suit, and knows almost nothing about its
background.

I'm sure that this settlement would be taxable to Mom, but
is it taxable to the daughter? Their estate is modest.

Jim
 
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A

Arthur L. Rubin

Jim said:
Daughter has received a cash settlement (about $20K)
resulting from a class action lawsuit. The twist is that
the award was to Mom. Shortly after the settlement Mom
passed away. The court sent the daughter a check in
daughter's name, along with a 1099. The daughter was never a
party to the suit, and knows almost nothing about its
background.

I'm sure that this settlement would be taxable to Mom, but
is it taxable to the daughter? Their estate is modest.
Income in respect of the decedent? Yep, sounds taxable.
Any estate tax or state inheritence tax attributable to
the payment would be deductible. (The settlement -- or,
at least, the "present value" of the settlement at the
time of death -- should be included in the taxable estate.)
 
A

Arthur L. Rubin

Jim said:
Daughter has received a cash settlement (about $20K)
resulting from a class action lawsuit. The twist is that
the award was to Mom. Shortly after the settlement Mom
passed away. The court sent the daughter a check in
daughter's name, along with a 1099. The daughter was never a
party to the suit, and knows almost nothing about its
background.

I'm sure that this settlement would be taxable to Mom, but
is it taxable to the daughter? Their estate is modest.
OOPS -- I almost forgot. The settlement might not be
taxable. I seem to recall a house construction fraud class
action suit a few years ago. In that case, the settlement
would reduce the basis of the property, or possibly be an
installment sale capital gain if you had already sold the
property.
 
T

Thomas Healy

Jim H said:
Daughter has received a cash settlement (about $20K)
resulting from a class action lawsuit. The twist is that
the award was to Mom. Shortly after the settlement Mom
passed away. The court sent the daughter a check in
daughter's name, along with a 1099. The daughter was never a
party to the suit, and knows almost nothing about its
background.

I'm sure that this settlement would be taxable to Mom, but
is it taxable to the daughter? Their estate is modest.
The value of the settlement would have been set at
date-of-death value. So the only income to daughter would be
interest added to the settlement between the date of death
and the date received.
 
P

Phoebe Roberts, EA

Jim said:
I'm sure that this settlement would be taxable to Mom, but
is it taxable to the daughter?
If it would have been taxable to the mom, then it's "income
in respect of a decedent" to the daughter. Line 21 with the
notation "IRD."

Phoebe :)
 
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D

D. Stussy

Jim said:
Daughter has received a cash settlement (about $20K)
resulting from a class action lawsuit. The twist is that
the award was to Mom. Shortly after the settlement Mom
passed away. The court sent the daughter a check in
daughter's name, along with a 1099. The daughter was never a
party to the suit, and knows almost nothing about its
background.

I'm sure that this settlement would be taxable to Mom, but
is it taxable to the daughter? Their estate is modest.
Per IRC 691, if it was taxable to the mother, it is taxable
to the daughter.
 
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