Opinion ID: 1938319
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Heading: Tax treatment of wrongful death damages.

Text: Under the Iowa statute, awards for wrongful death are not subject to federal estate taxes, Lang v. United States, 356 F.Supp. 546, 548-49 (S.D.Iowa 1973); In re Estate of Johnson, 213 N.W.2d 536, 538 (Iowa 1973). Nor are such awards subjected to state inheritance taxes. Estate of Dieleman v. Department of Revenue, 222 N.W.2d 459, 462 (Iowa 1974). Defendants contend trial court erred in failing to permit their expert witness to testify concerning the additional estate taxes these decedents' estates would have been subjected to had they lived to age sixty-five and died a natural death. Defendants rely on Adams v. Deur, 173 N.W.2d at 105, where we held defendant in a wrongful death action should be permitted to develop the effect of income taxes as they relate to the present value of a decedent's projected estate. But the accumulation measurement period only runs to time of death. Schmitt, 170 N.W.2d at 661. Taxes assessed after death should not be relevant to the crucial period. To accept defendants' argument would circumvent the collateral source rule in Iowa. We recently have reaffirmed this rule in Stewart v. Madison, 278 N.W.2d 284, 293-94 (Iowa 1979), and Conley v. Warne, 236 N.W.2d 682, 688 (Iowa 1975). See also Groesbeck v. Napier, 275 N.W.2d 388, 392-93 (Iowa 1979) (rationale behind collateral source rule applied to exclude evidence of remarriage of surviving spouse on issue of damages in wrongful death action). A tax saving was treated as a collateral source, thus precluding a damage award reduction, in Wiesenberger v. W. E. Hutton & Co., 35 F.R.D. 556, 558 (S.D.N.Y.1964). So viewed, the following language from Rigby v. Eastman, 217 N.W.2d 604, 609 (Iowa 1974), is pertinent: The weight of authority is conclusive to the effect that a defendant owes to the injured compensation for injuries, the proximate cause of which was his own negligence, and that the payment by a third party cannot relieve him of this obligation; that regardless of the motive impelling their payment, whether from affection, philanthropy, or contract, that the injured is the beneficiary of the bounty, and not the defendant who caused the injury. (Quoting Clark v. Berry Seed Co., 225 Iowa 262, 271, 280 N.W. 505, 510 (1938).) The same policy reasons support our holding that the injured party and his estate, rather than the admittedly negligent defendant, should benefit from the federal estate and state inheritance tax savings accorded the estate. Trial court properly sustained objections to the proffered testimony.