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Why not choose the annuity?

Topic closed. 47 replies. Last post 2 years ago by Romancandle.

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Kentucky
United States
Member #32652
February 14, 2006
7295 Posts
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Posted: August 3, 2014, 8:43 pm - IP Logged

HI, I am a newby here.  About the thirty year annuity(MM/PB). Life insurance is required here. Because if you die before the last payment the IRS will tax the remaining amount at present value. Your heirs will owe a boat load if you die to soon. The insurance would cover this tax bill.  I think the IRS gives them ninety days to pay.

  I have decided to take the Lump Sum when I win. Smile

WHAT HAPPENS IF AN ANNUITY PRIZE WINNER DIES?

The estate will handle the lottery prize. A lottery annuity prize is just like any other asset. You can pass any remaining annuity payments on to your heirs or to anyone else. The Powerball game will even cash out an annuity prize for an estate. This may make it easier for the estate to distribute the prize. It also may be necessary to cash out the annuity to pay Federal estate taxes. We will sell some or all of the securities at competitive bid or will even just transfer the securities to the estate. We do not charge a fee of any kind. We often hear people complain that the jackpot should not go back to "the state" when a winner dies. It does not. I think that this misunderstanding may come from the response that the prize "goes to the Estate" and some people hear "goes to the State."

The heirs will owe estate tax and the PB FAQ explains it and the MM FAQ  says about the same.

If a winner dies before receiving all annual payments, Mega Millions will continue to pay the annual payments, as scheduled, to the winner's designated beneficiary or to the winner's estate. Winners who choose the annuity method will receive an immediate payment followed by 29 annual Mega Millions payments. Check with your state lottery for more specific information.

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    Happy California
    United States
    Member #157856
    August 2, 2014
    1506 Posts
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    Posted: August 3, 2014, 8:53 pm - IP Logged

    Thank You Stack47 & Mike in Texas for your clarification of my message.See Ya!

      Romancandle's avatar - moon
      Upacreek
      United States
      Member #136306
      December 8, 2012
      428 Posts
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      Posted: August 3, 2014, 10:29 pm - IP Logged

      The real question with taking the annuity is if it's possible to take a portion of the after tax cash, invest it, and and get the same amount in 30 years.  I'm pretty sure most financial adviser will suggest taking the cash if for nothing other than a business reason. It's seems that when discussing "cash vs annuity", the fact the annuity will be taxed and possibly at the same tax rate but over 30 years, is usually ignored. And after 30 years a $60 million annuity jackpot might be really $36 million after taxes.

      To make it simple, use the "rule of 72" where if you divide 72 by an interest rate, the result is the number of years it will take to double the initial investment For instance it will take about 12 years (72/6) for an amount of money to double getting a 6% interest rate.

      "in year 2044, 30 yrs into the future... that 4 million is worth who know's what??? a lot less, guessing only 1 to 2 million?"

      Or just go back 30 years into the past. The prime interest rate was 13% on June 26, 1984.

      Thanks Stack

      I agree, most folks may not realize that a 100 million annuity does not = 100 million cleared after taxes over 30 yrs.... not even close.

      I was referring to purchasing power in 2044 with 4 million... 1 dollar today being worth half that or less in 2044 type of thing... maybe I got it backwards

      I'm sure most financial advisers would definitely recommend cash as they stand to make much more money vs managing the trappings of an annuity for their client.  Hopefully that good advice translates to more $ for their client too and not a bunch of smoke and mirrors (Madoff?)

      -RC