If you win big, you might be wondering if your Powerball winnings could be inherited or left to family members in your will.
If you’re fortunate enough to win the Powerball jackpot, the last thing on your mind is going to be a will and testament. You’re going to be too excited to think about what happens to your winnings if something happens to you. But it’s a consideration most financial advisors insist you explore. There’s more to the Powerball jackpot decision-making than a lump sum or annuity choice. And on the other side of the lens, if you have a Powerball-winner relative intent on passing that cash or annuity onto you, there are some inheritance stipulations you should know.
The Black and White Answers
Yes, you can pass down your Powerball winnings. Whether you take a jackpot in its lump sum form or in annuity form, you can dictate any remaining funds to transfer to someone else. And it’s a step you should look into taking before you even walk away with your Powerball jackpot.
The Gray Areas About Inheriting Powerball Winnings
There is a more challenging concept behind inheriting a Powerball jackpot. And if you’re not prepared to face the taxes, you could be in a heap of financial trouble. For example, if a winner passes away while an annuity payout is in place, the estate could face substantial taxing. Since the new heir is only limited to payments but may be responsible for taxation on the total amount, that could mean money coming out of your pocket to pay the IRS. At least if you inherit a lump sum, you’ll have the liquid assets to cover those monster tax bills.
A Texas woman, as an example, inherited her brother’s jackpot winnings upon his death. However, in taking the funds, she found herself facing federal taxes, in the amount of $18,000 per year, more than what the existing annuity was paying her. Furthermore, she would have to come up with that extra $18,000 every year for ten years before she would be able to keep and benefit from the annuity payments already set up in the estate.
Can You Have More Than One Beneficiary?
So, you might assume that maybe if you leave your wealth to more than one person, it might be easier for them to handle the taxes without overextending. However, each state has different guidelines for how you choose a beneficiary for the remainder of your jackpot. Unfortunately, it appears that most states only allow you to name one person to inherit your Powerball winnings.
Should You Take Your Money Lump Sum?
There are arguments for both taking the lump sum payout and opting for the annuity payments. And both are valid. It’s the key reason you’ll want to talk with a financial advisor professional to guide you on this first-step decision. But in terms of inheritance, either you are inheriting a jackpot from someone else, or you are planning a will to pass along your winnings, there’s even more to consider.
- Taking money out of a structured annuity jackpot will mean only taking a portion, not the full amount of the annuity’s value.
- Annuities tend to offer more financial security over a long period of time.
- Lump sums can be easier to pass on in a will and testament since the recipient will have the cash to afford the taxes.
- Just like any other asset, both forms of Powerball collections can be willed to a beneficiary.
What About Selling My Annuity?
Yes, you may be able to sell your annuity payments only after you’ve connected with Powerball officials to confirm. It’s also required that you have court approval for the transaction in the event the sale of an annuity is or isn’t in the best interest of the holder. There are 28 states that officially allow the aftermarket sales of lottery annuities in any form, trading for a lump sum payment. But it’s equally critical to recognize that the final take-home amount may be negotiated to come out less than what your original annuity contract payout states.
The best advice when it comes to inheritance and Powerball winnings is to get the professionals involved to help you decide. Each person’s situation will be unique, warranting a unique approach to managing the life of an annuity or the sizable lump sum. But not planning at all can translate to serious headaches down the road.