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Lottery winnings are generally paid over a 20-year period. Winners pay income taxes on the receipt of these proceeds and life goes on.

What happens if the lottery winner does before collecting the 20 years worth of payments?
The remaining payments are subject to estate tax at the Federal and State levels. The estate tax can create serious issues. The remaining payments are actually computed into a hefty sum, which is taxable in the winner’s estate. The lottery winner generally does not have enough money to pay any estate taxes because the remaining annual payments have not yet been received.

What should a lottery winner do?
The first thing is to speak with an attorney and other advisors. One individual is the owner of the ticket. If that individual is married, the surviving spouse can receive the proceeds without any estate tax. The value of the lottery ticket is sheltered by the marital deduction. Transfers between spouses are not subject to estate tax.
Lottery winnings lawThe same scenario applies and the value of the lottery ticket is taxable in the estate of the lottery winner.

What are the alternatives?
You can purchase a life insurance policy, either on the single life of the lottery winner or on the joint lives of the lottery winner and the spouse. The annual premiums for this life insurance policy are substantially less than the annual payments under the lottery. Further, the life insurance proceeds are received at the time of death and will be sufficient to pay any estate taxes. The lottery winner’s heirs will continue to receive the payments during the life or lifetimes of the remaining beneficiaries of the lottery winner.

There are several other interesting solutions, including the use of trusts. If a person wins the lottery, proper planning can take place before the lottery winnings are claimed and part of the proceeds received.

Conclusion
If you win the lottery, talk to your lawyer before you cash the ticket. If you have not done so and cash the ticket, you should still consult your lawyer to protect yourself against the loss of revenues or earnings upon the death of the lottery winner.

 

About\Taroff & Taitz
Taroff & Taitz, LLP provides a wide variety of legal services to Long Island. Our attorneys have served the residents of Suffolk County for more than two decades. Comprised of attorneys, legal assistants and administrative staff, the firm provides support at various levels of legal expertise. Our resources are available to both businesses and individuals looking for experienced legal representation. The firm’s primary areas of concentration include civil litigation, creditor’s rights law, trust and estates issues, estate planning, admiralty claims, business counseling and real estate matters. For more information, please call 631-475-4400.

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