Estate Tax Implications of Winning Tonight’s Powerball Jackpot!
Tonight many Americans will be anxiously waiting, tickets in hand, while the numbers are drawn. If you are the lucky winner of the Powerball Jackpot, you will have the option of taking annuity payments for the full amount over the course of 30 years, or a smaller lump sum.
Once you become a multimillionaire, you will not only have to pay income taxes on the winnings during your life, but your estate may receive a large estate tax bill upon your death.
While you may think that taking the annuity seems like a good idea (since you end up receiving more money in the long run), you need to consider the estate tax implications of this decision. In Massachusetts, the estate tax exemption is $1,000,000 and the federal exemption is $5,000,000. This means that if at death your assets are over these thresholds, your estate will be subject to a hefty tax.
If the winner chooses the annuity option, but dies before collecting all the payments, the present value of the remaining payments would be includable in your taxable estate for Massachusetts and federal estate tax purposes. What does this all mean? It means that your estate would owe tax on money that hasn’t been received yet. This can become a huge problem, especially if the you die within a few years of winning.
What is the moral of the story? If you win the Powerball Jackpot and don’t want to leave your loved ones in a difficult financial position upon your death, contact a trusted estate planning attorney to know your options!