On another thread, dvdiva brought up what happens to beneficiaries should someone die while taking annual payments. I never gave this much thought, because most people I know don't have millions of dollars to invest (I wish!) and most annuities people purchase will pay out a lump sum upon death. That's because there isn't a "future" value and it's usually an investment to defer taxes and protect savings from creditors, etc. Since the PB annuity is a structured settlement, if a winner chooses annual payments and dies, there are often battles with the IRS. The IRS wants to get paid on the market value of the entire prize, even if the beneficiaries don't receive the money. They have 9 months to do this. I posted a link to a CPA site that gives several examples of court cases where someone passed away before receiving his money from the lottery. This only applies to estate tax, not income tax. If estate tax is repealed in 2010 then this won't be an issue, although in 2011 it is supposed to begin again at $1 million (really stupid IMHO) and has been argued in Congress.
Estate tax is double taxation and completely unconstitutional IMHO. It seems as if someone must plan to die in a certain year, which is so ridiculous. If you look at the current IRS guidelines, if someone dies today or in 2008, the estate tax is on an inheritance of $2 million or more and in 2009 it increases to $3.5 million, so if you are dying in Dec and just hang on until Jan 1, 2010 your family will inherit everything without any estate tax at all, since it will be repealed that year and there will be no estate tax at all.
I can just see it now. A man wins $100 million this year and only takes 2 more payments. He dies on Christmas 2009. Everyone is trying to hide the body from neighbors and friends until after New Year's Day so they dress up Pop and tell everyone he's sleeping and take him for drives in the country until Jan 2.