Are Lottery Payments Inheritable?

This question may sound morbid, but it’s a very sensible query: What happens to my winnings if I should die? There are rumors that the government gets to keep the money if a person dies before the last payment of annuity has been paid off, but it’s not true.

Lottery payments are inheritable. If you take the lump sum, it is obvious that you can pass it on to your heirs. If you opt for annual payments, the annuities will also be considered your personal property. So regardless of how you receive your winnings, your heirs can inherit the prize.

However, it’s not that simple. Various factors and conditions affect the inheritance of annuities by a beneficiary or distribution of assets of the estate. In this article, we’ll discuss everything you need to know about inheriting lottery payments.

Claiming the Prize: Annuity vs. Cash Value

Annuity vs Lump Sum

When someone wins a lottery, he or she is given a certain amount of time to claim the lottery winnings. This time limit for claiming the money can be anywhere from 90 days to a year. If the winner doesn’t claim it within the time limit, the states that participated will get their money back, and they’ll be able to spend it however they want.

Now, the winner also has two choices when it comes to receiving the prize. He or she can either take all the money at once or receive it in installments.

If you opt for the first option and cash out the prize, you’ll get all the payments upfront. The money you receive will be less than the reported jackpot amount but equal to the sum available in the jackpot prize pool. This option allows you to get hold of all the money at once and invest or spend it the way you want.

With the annuity option, the winner receives payments over a period of 30 years. The sum of these payments will equal the publicized jackpot amount. This option gives the winner a continuous stream of income for decades.

When you choose lottery annuity, you receive not only annual payments but also an interest in the sum of remaining payments. This interest is 5% in Mega Millions and Powerball lottery.

So, which one is better? It entirely depends on the winner’s personal situation and how they want to use the money. The winner should consult a decent financial advisor to weigh the options.

One thing to keep in mind is that if you choose to take the lump sum, you’ll receive the top prize minus the taxes. This will leave you with about one-half of the total amount. On the other hand, if you take the annuity, you’ll get lower taxes, earned interest, and a larger overall return.

For example, if you win a lottery of $1,000,000, you may be offered a cash payment of $785,000 or an annual payment of $50,000 for the next 20 years.



Before we move further, it’s important to note that you must consult a financial advisor so that you can get input on the best options for your specific situations. We’ve given you an overview of the process, but for any specific questions or issues, contact a qualified financial advisor.

With the cash payout option, it is fairly simple. If you receive all the payments upfront, you can distribute them however you want to while you’re alive. Or you can determine how the money will be handled upon your death through a will.

Before we talk about the distribution of annuity payments upon the winner’s death, it is important to note that every state has its own lottery commission. This means that every state sets its own rules for play. Also, it depends on the rules of the state lottery you’ve won and not the state you live in.

So, depending on the rules of the state, if the winner chooses to receive annuity payments, they may get to name a beneficiary who will receive the remaining payments upon their death. In this case, the beneficiary will continue to receive lottery payments after the winner’s death.

Unfortunately, most states allow you to name only one beneficiary, which can cause problems if you want to bequeath assets to more than one heir. You’ll need to check the rules of your state lottery commission and see if they allow for more than one heir in their beneficiary options.

If the state rules allow for only one beneficiary to be named and you have multiple heirs, it is better to leave this option; instead, you should let the winnings be transferred to your estate upon your demise.

So, there are two scenarios to be discussed – either the winner has chosen a beneficiary, or the annuities become an asset in the estate. In the next sections, we’ll look at how payments are distributed by the state lottery commission in each case.

Cash-Out Options for Beneficiaries


After the death of the lotto winner, the beneficiary will begin to receive the annuity payments just as the winner did. It’s fairly simple, and most lotteries will allow the winner to choose a beneficiary at the time of claiming the prize.

However, if your loved one passed away and left you with a lottery annuity, you don’t necessarily have to keep receiving yearly payments like them. The regular and reliable income may have been suitable for him, but you may find that a lump sum would help you to pay off the debt, invest it, or pay other crucial expenses.

The options you have for cashing out for your lottery annuities will ultimately depend on how the state lottery commission has set it up. But you can always sell your lottery annuity payments for cash. Insurance or factoring companies are always ready to offer you instant cash in exchange for your future annuity payments. Basically, you can sell your right to receive the future lottery payments to the company, and you’ll be paid instant cash.

If you’re interested in selling your future lottery payments, you can get an estimated sales value of your lottery annuity by using annuity calculators like this one. Remember that the amount you receive will be less than the sum of annuity contracts.



If the lottery winner didn’t choose any beneficiary, the remaining winnings would be transferred to their estate for distributing it to their heirs. The commission may also sell the rest of the balance at a fair market price and give the balance to the estate. Such cashing out makes it easier for the estate to distribute the balance among heirs and pay federal estate taxes.

So, how are the annuity payments in the winner’s estate distributed? If the lottery winner hasn’t left a will or made final arrangements, the state will distribute the assets in the estate according to the law. Every state has its own set of rules and ways to process estates with and without a will. These rules are known as “intestate succession” laws.

An executor is a person who makes sure that things are carried out according to the will of the deceased or the state laws. Now, if there’s no will to name an executor, state law will provide a list of people who are eligible for the role. The court may choose a person from that list if a probate court proceeding is compulsory.

In most states, the first choice will be the surviving spouse or registered domestic partner of the deceased winner. Adult children are the next choice, and other family members then follow on the list.

Who Can Inherit From the Estate?


If the winner has left a will for the distribution of assets upon his or her death, the executor makes sure that the will is carried out. However, if the winner has left no such will, the state will distribute his or her assets according to the laws of the state.

Once an executor has been chosen, the distribution of assets takes place. Again, every state has laws that determine what’ll happen when someone dies with no valid will. Normally, only spouses and blood relatives inherit any annuity payments or other assets of the estate; friends, unmarried partners, and charities don’t get anything.

If the winner was married, the surviving spouse would receive the largest share of the payments (or the balance after selling the payments at a fair market price). Also, if there are no children, the spouse will get everything. More distant relatives will inherit the assets only if there are no children or surviving spouses. Lastly, in the rare event that the winner has no relatives, the state will take the assets.

Who Qualifies as a “Surviving Spouse?”


It’s usually clear if the winner has a surviving spouse or not. But it’s not always obvious. For example, if the couple had separated before the winner died, or if one of them had begun divorce proceedings, a judge may have to decide whether or not the other person is considered a surviving spouse and is eligible to inherit the lottery payments.

But what happens if a couple has been living together, but not married? Will the person still be able to inherit his or her partner’s lottery payments? It depends. Some states allow what’s called a common-law marriage. It’s when two people who have never married legally are considered to be legally married under certain situations.

Usually, the couple must live together and intend to get married in order to create a common-law marriage. You’ll need to check with your state’s law to see if your state accepts common-law marriage and the conditions laid down for it.

Married spouses of the same sex also have the same rights and responsibilities as all other legally married people. This also includes qualifying as a surviving spouse and inheriting the annuities or other estate assets of the deceased spouse.

Who Comes Under “Children?”

Family Tree

Apart from biological children, who obviously inherit their parent’s assets or annuities, there are different laws regarding adopted, foster, or stepchildren.

  • Legally adopted children will also inherit from their parents, just like biological children.
  • In the case of stepchildren, most states do not include them in the definition of “children” for inheritance. A stepchild is the child of the spouse of the deceased winner who wasn’t legally adopted by the deceased winner. So, they won’t get a share from the annuities. In some states, however, it depends on the condition of the relationship.
  • If a stepchild was legally adopted by their stepparent, they might still be entitled to inherit from their biological parents, depending on the state law.
  • Foster children typically don’t inherit from their foster parents.
  • If a child was conceived before a parent’s death but was born after the death of the winner, he or she will receive a share from the lottery payments just as children born during their parent’s life do.
  • If children are born to unmarried parents, they’ll always inherit from their birth mother, unless they’re adopted by an unrelated family. If the parents had never married, the children would usually have to show some sort of proof in order to inherit from the father.

Apart from children and spouses, the intestate succession law may also include the deceased winner’s “siblings” or “brothers and sisters” as heirs. This category includes half-siblings as well, and it may even include half-siblings who were adopted out of the family.

What if an Heir Dies?


If an heir dies, obviously he or she can’t inherit anything. But if the heir was a close relative, such as a child of the deceased winner, then the heir’s children may be eligible to take some or all of the winnings that their parent would have inherited.

Whether or not a deceased heir was (and his or her offspring is) entitled to receive assets from the estate depends on the state laws. An heir may have to outlive the deceased winner by a certain period in order to inherit. In many states, this required period is five days or 120 hours. In some states, however, the heir has to live any length of time more than the deceased person – theoretically, even one second would do the job.

Intestate succession laws state that if an heir has died, his or her children will inherit their parents’ share. In other words, they will take the place of their parent, representing them in the distribution of assets.

There are no general rules as to exactly who should be entitled to inherit. This concept is complicated and varies heavily according to state laws.

Tax Considerations

Tax Considerations

If you’re going to inherit someone’s lottery annuity payments, it’s important to consider how taxes will affect you. If you are the spouse of the deceased winner, you may continue to receive the annuity payments without any immediate effect on your taxes. Non-spouse beneficiaries, however, will have to pay tax on the income with each payment.

There’s no fee for transferring the winner’s annuities to the estate. But the District of Columbia, the federal government, and 12 states impose an estate tax. The payments will be valued for tax purposes, regardless of whether or not a beneficiary was named in the lottery agreement.

The states that charge estate tax have their own rules and regulations. However, all states exempt any portion inherited by the deceased’s spouse from estate tax.

In some states, the executor of the estate may be able to request a cash payment from the lottery commission. Taking a lump sum instead of annuity payments may seem like the best option. But it can pose tax estate tax issues if the formula used by the IRS to calculate estate tax on the annuity or cash payment is different from the formula used by the state to calculate the cash amount.

Final Thoughts

We’ve talked about many different things in this article. Here’s a quick summary of everything we’ve looked at:

  • A lotto winner can either receive all the lottery payments upfront or get annual payments for the next few decades.
  • If a beneficiary has been chosen, he or she will receive the lottery annuities upon the winner’s death. The beneficiary may even sell the annuity payments in exchange for instant cash.
  • If no beneficiary has been chosen, the lottery payments will be transferred to the winner’s estate.
  • If the winner has left a will, it’ll be carried out as per the will’s instructions. However, if there’s no valid will, the state will distribute the assets according to the state laws.
  • All non-spouse beneficiaries will have to pay taxes on the income, regardless of whether or not a beneficiary was named.

Neither claiming the lottery or inheriting annuity payments is an easy task. If you ever find yourself in one of these situations, consult a qualified financial advisor and tax attorney. Lottery payments usually contain a huge amount of money, and only experts will be able to guide you properly.