A few years ago, we worked with the family of a man severely injured in a construction site fall. After a long fight, he received a settlement large enough to provide for his family for life. Tragically, he died from an unrelated illness before updating his will. His wife and children were left with a significant financial asset but no clear instructions. What should have been a source of security became a source of conflict, ending in a prolonged Surrogate’s Court proceeding.
In my practice, I have seen this happen more than once. A personal injury lawsuit is designed to compensate for a loss. But when that compensation—or the lawsuit itself—becomes part of an estate, the questions change. The focus shifts from winning the case to stewarding the proceeds. It becomes a matter of legacy.
Your Claim as an Estate Asset
Most people do not think of an active lawsuit as a financial asset, but the law does. If a person with a pending personal injury claim dies before it is resolved, the claim does not vanish. Instead, the right to continue that lawsuit passes to their estate. The person in charge of the estate—the executor named in the will or an administrator appointed by the court—steps into the shoes of the deceased plaintiff.
This representative, acting as a fiduciary, has a duty to prudently manage the lawsuit like any other asset, such as a bank account or real estate. Their job is to see the claim through to a settlement or verdict for the benefit of the estate’s beneficiaries. If a settlement has already been paid, those funds become part of the decedent’s taxable estate, distributed according to their will or New York’s intestacy laws.
An old will—or no will at all—is rarely equipped for a sudden influx of cash. The result is often unintended consequences for the heirs.
Wrongful Death vs. Survival Actions in New York
When an injury leads to death, New York law allows for two distinct legal actions. Families must understand the difference.
First is the “wrongful death” claim. Governed by Estates, Powers and Trusts Law (EPTL) § 5-4.1, this action is brought on behalf of the surviving family members, not the deceased. It seeks compensation for the financial losses the family suffered—lost wages, loss of parental guidance for minor children, and funeral expenses. Proceeds from a wrongful death action are paid directly to the family and are not considered assets of the deceased’s estate.
Second is the “survival action.” This continues the personal injury lawsuit the deceased could have brought had they lived. It seeks damages for the pain and suffering the deceased personally experienced between the injury and the moment of death. Any recovery from a survival action flows directly into the estate. It is then distributed to beneficiaries according to the will or state law. This distinction has significant implications for creditors, beneficiaries, and estate taxes.
Prudent Planning for a Settlement
A significant settlement provides security, but without deliberate planning, it creates new challenges. Whether you anticipate a settlement or have already received one, the stewardship of those funds is critical.
A large cash award can increase the value of your estate, creating potential estate tax liabilities. More commonly, for individuals receiving government benefits like Medicaid or SSI, a settlement can disqualify them from these essential, means-tested programs. A properly structured Supplemental Needs Trust can hold the settlement funds, allowing the beneficiary to pay for expenses not covered by public benefits without jeopardizing their eligibility.
For parents of minor children, a settlement requires careful thought. Simply leaving money outright to a child in a will means it will be controlled by a court-appointed guardian until they turn 18—at which point they receive the entire sum. Most of my clients in Manhattan and across the boroughs prefer to establish a trust. This appoints a trustee of their choosing to manage the funds, protecting the inheritance and distributing it according to a more intentional, generational timeline.
A personal injury settlement should be a tool for rebuilding. Integrating it into a larger estate plan ensures it serves the family for decades, rather than becoming a source of future legal complications.
If you are expecting a settlement from a personal injury or wrongful death action, the logical next step is to analyze how those funds will impact your family’s long-term financial structure. My firm can schedule a confidential review of your existing estate plan to identify potential tax liabilities and asset protection issues before they arise.
