Question

Is this class action settlement taxable?

Forum|Forum|4 years ago
March 11, 2022
1 reply
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I am the executor of an Estate.

A check regarding the following class action lawsuit was received in 2021 approximately a year and a half after the decedent passed away, so it was deposited and processed accordingly through the Estate.

The class action lawsuit regarded the "improperly raised the Monthly Deduction Rate (MDR) on certain of its life insurance policies."

http://thompsonsettlement.com/FAQ

There was no supporting documentation at all with the check and we have not received any sort of tax form.

Does this go anywhere on the Estate's 2021 tax return? If so, where? And what description would I put, if needed?

Is it considered income?

Would it be taxable?

Anything else I should know?

D

DianeW777

The answers to your questions and the information specifically relating to the reason for the lawsuit are shown below.

Is it considered income?

Yes, this is not a reimbursement of your premiums and therefore it is income you have not paid tax on prior to receipt of this income. It is also not insurance proceeds from the policy where the premiums paid were from your after-tax income.

Would it be taxable?

Yes, for the reasons stated above.

Anything else I should know? If the amount is below $600 then a tax document would not be required to be filed or issued to you.

What the lawsuit is about:

The Plaintiffs contend that Transamerica’s actions increasing Monthly Deduction Rates (referred to in this Notice as “MDRs”) on two groups of universal life insurance policies, known as the “TransUltra 115 98/99” policies and the “TransSurvivor 115 97/98/99” policies (collectively referred to in this Notice as the “Policies”) were not permitted by the terms of the Policies (the “MDR Increases”). The MDR Increases became effective on policy anniversaries beginning October 1, 2017 with respect to the TransUltra Policies 115 98/99 and on policy anniversaries beginning June 1, 2018 with respect to the TransSurvivor 115 97/98/99 Policies, Transamerica denies these contentions and maintains that it did nothing wrong in adopting the challenged MDR Increases.

It is important to understand that the Class Action challenged only the MDR Increases, not premium increases which may have occurred for reasons unrelated to the MDR Increases. For example, if during the preceding years you did not pay sufficient premiums to maintain your Policy’s accumulation value at a high enough level during a time when the interest rates that Transamerica credited to the accumulation value declined, you would face significantly increased premium payments even if there were no MDR Increases.

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L

LG2022Author

Thanks so much, DianeW777!

Yes, the amount is over $600.

Even though I didn't get a tax document, I would rather not hold up the K-1s and the return, if at all possible, trying to get the tax form, which could take a while.

It was only one check received, so I have the exact amount, though I have no clue what form they should have sent or what "box" on the form it would be listed in.

Would I need to file tax extensions because I need to wait to get a form issued (reissued)?

Where (what line) on the Estate 1041 should this go?

If it's in the "other" category and they want a description, how would you suggest describing this?