Winning the lottery and opting for installment payments can pose a big problem if you die before you collect all the money. Of course, after you die the installment payments will continue to be paid to your estate. That is good news, right? You decide after I explain the situation as good as I can.
After your death the IRS determines the present-day value of the future payments that are left. For a 20 million dollar jackpot, payable in 20 installments of 1 million pro year, when the winner dies after 1 million dollars have been paid out minus federal and possible state taxes withheld, the deceased is leaving an estate worth about 9.5 million dollars, which is the present-day value of those future payments of 1 million dollars each for the next 19 years. The estate tax on this whole amount has to be paid within 9 months. Unless the heirs have several million dollars at their diposal to cover the tax liability, the estate is in deep trouble because practically every state law does not allow future lottery prize payments to be sold or used as collateral for a loan. Until the laws are changed, the only option the estate has is to forfeit the rest of the prize. Sad but true as I understand it.
I DREAM, THEREFORE I EXIST. (August Strindberg)
Tags: annuity, heirs, jackpot winner dies, present-day value
