Is an Insurance Settlement Annuity taxable once it Matures?
My son broke his arm in a trampoline accident and was awarded a settlement in a "friendly" lawsuit when he was 7. The settlement proceeds were placed into an annuity until he reached a minimum of 18 years old. I set it to mature when he turns 25 which is today. His $11,000 settlement has matured into a little over $24,000. Is any portion of this taxable?
- babyboomer1001Lv 79 months ago
I believe so but check with a tax attorney or CPA to be 100 percent sure, since tax laws vary from state to state and federal laws - I believe it is taxable income. However, congrats on your well-placed investment for your son.Source(s): Certified Paralegal, with 25+ years' experience.
- 9 months ago
Casey - Please educate yourself before posting snarky replies. The neighbor's insurance company paid the medical expenses and offered a cash settlement for potential, unforseeable medical expenses should they occur before my son turned 18. Since he was a minor, and the medical expenses and settlement exceeded $10,000, the State of Oklahoma required that the settlement be handled through the court system to protect the child's interest and protect any cash settlement from greedy parents. This gets into the court system through what is called a "friendly" lawsuit. The insurance company files suit against itself and a judge rules on the settlement. The proceeds are then, by law, put into either a guaranteed trust or annuity until the child turns 18. In my case, as a parent, I was allowed to set the length of the term and set it to mature when he turned 25.
- Max HooplaLv 79 months ago
It depends. You should go to a live tax professional on this and don't rely on any advice you get here because you will need to lay out a bunch of facts that is too much to post in Answers.
- JudyLv 79 months ago
Most likely, at least the 13k gain, and maybe part of the original 11k.
- What do you think of the answers? You can sign in to give your opinion on the answer.
- EvaLv 59 months ago
The earnings are taxable.
- Casey YLv 79 months ago
You sued your kid's friend's parent to collect from their insurance company. Hey, you had a claim...I just dont like the word friendly...but you had a legit claim so I'll pull back.
Anyway. Here is the IRS publication which pertains to insurance settlements. In most cases, no tax implications...however...
There are a couple of small loopholes. Who paid for the medical expenses? Were they settled at the time by this company or by your own health insurance? If your own health insurance, you probably need to pay them back from the proceeds of the lawsuit. Otherwise, no worries.