The lump sum is supposed to be the present value of the income stream - or perhaps the amount it would cost to purchase an annuity. So the numbers are roughly equivalent in terms of real value.
The estate tax would be on the present value of the future income stream.
Under IRS regulations, as I recall, nothing happens until the identity of the winner is made known (by his claiming his winnings, I assume). But at that point income recognition is retroactive to the date of the drawing. Stu
You mean you can't wait and decide after you win? (How would I know? I never play it.) Now it dawns on me. That's why the Georgia lottery says you have to choose before you buy the ticket. But if that's the case, one can't really wait and go to a lawyer afterwards and split it among his family now, can he? Holiday ChEAr$, Harlan Lunsford, EA n LA
(balance snipped and not responded to here)
Dick said the "general rule" is to take the money and run. Most people do. However the correct answer is "it depends." Yep.
I would do a present value analysis of lump sum versus pay outs over the time horizon in order to compare the two sums. Then I would modify it for the recipient's life expectancy, and figure in any estate tax consequences. And I'd charge my client about.... oh.... guess i'd have to figure that out, too! (grin) Holiday ChEAr$, Harlan Lunsford, EA n LA
Moderator: How could I forget to include "It depends"?
If your investment rate assumption is interest (or short term capital gains) at the now-prevailing rate (the same one as the lottery buys from a bank), then you're better off taking the annuity. If you can do better than that rate, especially if it's in long term capital gains, you're better off with a lump sum.
No; that was discussed much earlier. It's income in respect of the decedent, and subject to two levels of taxation immediately. Seth
I'm not a lawyer.
Nobody knows whether or not the (hypothetical) lottery ticket in my pocket was intended, when I purchased it, as a shared asset in that I gifted 25% of it to each of my (hypothetical) children. Since its value at the time of purchase was $1, nobody cared, either. Now that I've won $umpteen million, it's time to see a lawyer to formalize the arrangement properly. Seth
New York (used to?) say that. Minnesota doesn't. I think the IRS lets you decide late, but some states might not.
See my previous message; it was split among his family before the winning, but when the ticket was worth $1 nobody cared. Seth
I'm sure the lawyer would have no problem with the concept of your splitting your winnings among his family.
--ron
You forgot to go to law school - that's the only thing they teach there. Stu
Moderator: I taught my students "It depends" to the point that one student tried to use it as the answer to an essay question.
Someone cited section 451(h), which I wasn't aware of before, that apparently gives people who win lotteries the option. The drafting is certainly not a model of clarity, but that could be what it means. Stu
I believe that the terms are a state by state (or multi-state) lotto thing. Here, for example, is what the Florida Lotto web site says: "You can choose to receive your portion of the FLORIDA LOTTO jackpot in a one-time Cash Option payment, or you can receive it in 30 annual payments. You have 60 days after the winning draw date to elect the Cash Option payment."
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