Dear Dr. Don,
Can you leave your lottery winnings in your will?
— Rich Este
It depends on which lottery you win, how you receive the winnings and whether you have a valid will. It’s important to know the terms in establishing an estate plan.
Lotteries that offer “lifetime prizes” typically would not allow the winner’s heirs to inherit. Winning $1,000 a week for life won’t have any residual value in the winner’s estate.
I’ll presume you’re talking about electing, or winning, annuity payments and are asking about what happens to these annuity payments when the winner dies before all the payments are made.
The fear that the annuity dies with the annuitant is largely unfounded. The annuity stream becomes part of the winner’s estate. If the decedent has a will in place, the will should speak to the disposition of this asset.
One potential issue is in the estate having enough liquidity to pay any estate taxes due on the winnings. To that end, some lotteries provide for a lump-sum distribution of the remaining payments from the lottery authority.
It’s common now for lotteries to allow you to take your winnings as a lump sum. Even in states that don’t, you could sell the payment stream to a financial firm and pocket a lump sum. The lump sum finesses the liquidity issue in the estate because you already have taken possession of the winnings. You can specify in your will how the funds will be distributed.
Read more Dr. Don columns for additional personal finance advice.