The odds of winning a lottery are slim, but if you’re fortunate enough to hit the jackpot, various decisions await you. Out of the two payout options, the lump sum looks like a better choice because who knows if you’ll even get all the money, right? Well, the annuity method can be a better option in a lot of cases, and you also don’t have to worry about receiving the payments.
Lottery annuity payments are contractually guaranteed. States have enacted laws to ensure that you receive all your winnings as per the schedule of payments. If you die, your heirs will continue to receive the money. If need be, you can also sell your annuity payments in exchange for instant cash.
But how exactly are these payments guaranteed? What happens if the lottery company goes bankrupt? In this article, we’ll discuss everything about how you receive your lottery payments, what happens after the winner’s death, and after-market sales of your lottery annuity payments.
How Are Lottery Annuity Payments Guaranteed?
Every lottery winner has two options to collect the winnings: take the lump sum right away or receive it in the form of several annual payments. The lump-sum is a single, big cash payout – you receive the money, and it’s over, while the annuity option is a series of smaller, annual payments spread out over 20 to 30 years.
So, which option is best for you? It depends on your situation. If you can invest the sum to earn an annual interest of more than 3 to 4%, you should opt for the lump sum. But if you want a steady source of income for decades to come, annuity payments are the way to go.
If you choose the annuity method, will you really receive all your money? Thirty years is a long time, and it’s natural to wonder if the payments are backed by the law or not. The good news is that lottery annuity payments are contractually guaranteed. If necessary, the contract can be enforced by the court, which means you can sue the lottery company if they fail to pay you the money.
Now, you might think that you won’t receive the payments if the lottery company goes bankrupt. However, that’s not possible. In the US, only states can have legal lotteries, and the odds of a state going bankrupt are slim to none.
Also, when you choose the annuity method, the state lottery commission takes your money and invests it for you. The winnings are most likely invested in highly stable Treasury bonds. If you were to take the lump sum and invest it yourself, you would have to pay taxes. But when the government does it for you, it’s free of all tax obligations.
As these bonds are highly stable, there’s no need to worry about whether or not you’ll continue to receive your annuity payments over the next decades.
So, if you win a lottery and choose to receive annuity payments for the next 30 years, you are guaranteed by law to receive your winnings. You will also save taxes and earn investment income from the winnings.
What Happens if You Die?
So you know that lottery annuity payments are guaranteed by state law, but what happens if the winner dies before all of the payments have been made? Does the government get to keep the money, or do the winner’s children inherit the payments like other assets?
A lottery annuity is an annuity certain, which means that it’s designed to provide a series of payments for a set period to you or your beneficiary or estate. So, if you happen to die before the completion of your annuity, the lottery commission will continue to pay your beneficiary or your estate. It’s not just you who is guaranteed to receive the payments, but the winnings will be transferred to your heirs as well upon your demise.
Most lotteries will allow you to choose a beneficiary at the time of claiming your winnings. If selected, the payments will continue to go to the beneficiary after the winner’s death. However, most states allow you to name only one beneficiary. So if you have multiple heirs, it’s better to let the winnings be transferred to your estate after your death.
If no beneficiaries have been selected, the lottery commission will transfer the payments to the deceased winner’s estate. The commission may also sell the rest of the balance at a fair market price and hand the money over to the estate.
If the winner has left a will to direct the distribution of his or her assets, the distribution will take place according to the will. Every state has its own set of rules and ways to process estates with and without a will. If there’s no valid will, the funds in the estate will be distributed according to the intestate succession laws.
What if You Need Urgent Cash?
Although you’ll receive guaranteed annual payments from the lottery commission, you may require urgent cash due to an investment opportunity or an unexpected financial problem. In that case, will the lottery commission offer you an advance payment, or is there something else you can do?
The rules for early withdrawal or selling your annuity payments differ from state to state. Each state has its own lottery commission and sets its own rules for playing. You’ll need to contact your state lottery commission to confirm these things.
The guarantee of lottery annuity payments only ensures that you’ll receive the money as per the schedule of payments. There’s no law stating that you’ll be eligible to withdraw from your annuity whenever you need the money. However, you may be able to borrow money from your next annuity payment. As we’ve said, it depends on your state laws, so you’ll need to contact your lottery commission for more information regarding this.
Now, if you want urgent cash, your best bet is to try to sell your upcoming lottery payout in exchange for cash. If you’re interested in selling some or all of your lottery payments, you should know that in the USA, 28 states currently allow after-market sales of annuity payments for a one-time cash payout. So, again, it all depends on whether or not your state laws permit such dealings.
If your state allows you to sell lottery payments, you can obtain instant cash in exchange for your right to receive future payments. Various insurance or factoring companies are always ready to purchase your annuity payouts and offer you cash amounts.
States have enacted laws aimed at protecting the receivers of annuity payments. These laws ensure that the winner receives all the money according to the schedule of payments. However, these laws also restrict the winner’s ability to sell his or her right to receive the rest of the payments in exchange for a one-time cash payment.
If you ever win the lotto, you will need to work with your tax attorney, financial advisor, and certified public accountant to find out which option is the best for you – take the money all at once or receive annual payments over the next few decades.
As far as a guarantee of payments is concerned, rest assured that you’ll receive all your winnings over the set period. Every state has its own state lottery commission, and there are laws to ensure that the winner gets the prize.
If you happen to die, your spouse or heirs will continue to receive the money as per the schedule of payments. If you require urgent cash, your best bet will be to sell your right to receive annuity payments in exchange for instant cash.