If you win a large amount in a lottery, you are given the option of taking your winnings in one lump sum or spread out over a number of years. Taking the whole amount up front minus the taxes usually leaves you with about half the total. Taking annuity payments provides you with earned interest, lower taxes, and a larger overall return. If your winnings are so massive you think you'll outlive your earnings, it is smart to transfer some of the money to another.
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Part of Your Estate
If you die while still receiving annual annuity payments from winning the lottery, your claim becomes part of your estate. The lottery commission may pass on the annuities intact to the estate or sell the remaining balance at a fair market price and turn the balance over the estate. Cashing out an annuity for an estate makes it easier to distribute the money among heirs, and it may be needed to pay estate taxes. There is no fee for transferring your annuity payments to your estate.
Read More: What Happens When the Heir of an Estate is Deceased?
Community Property Rules
Depending on the community property rules in your state, your winning ticket might automatically count as joint property. To cover each other, a married couple should consider creating a trust account into which annuity payments are delivered. The trust can then be set up with rules as to where the money goes in case of divorce or death. Children and other heirs can then be adequately covered in the trust as well to make sure the payments are legally transferred to that trust.
State Assignment Laws
Assignment laws vary by state. In general, lottery annuity assignments are not allowed without a court order. You may assign part or all of your winnings to another party if you bring your case before a judge. You must file a petition, signed by both the winner and the person to whom the winnings are assigned, with a district court.
All petitions must abide by the laws of the state. In Texas, for example, the assignor must be over the age of 18 and of sound mind. The assignment cannot be made under duress. As the winner, you should be appraised by an independent counsel about your tax obligations and release the Texas lottery commission from any further liability for the payments.
Rules on Court Process
When presenting a petition for assignment of annuity payments from lottery winnings, you must provide the court with details of the future transactions. You must give the court with the dates and amounts you wish to assign, and how much you are selling your rights for, if any money changes hands between you and the person to whom you're transferring the annuities. In Texas, you have three days after filing the petition to change your mind.
In most cases, a spouse also must sign the transfer papers. You may assign annuities to no more than three parties.
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Linda Ray is an award-winning journalist with more than 20 years reporting experience. She's covered business for newspapers and magazines, including the "Greenville News," "Success Magazine" and "American City Business Journals." Ray holds a journalism degree and teaches writing, career development and an FDIC course called "Money Smart."