Lottery Winnings – Overtime or Overnight?
Whether a lotto winner should take a lump sum payment instead of annuity payments is not a simple decision. Among the factors to be considered are interest rates paid on the annuity, personal finances, the state’s policy concerning disposition of funds and tax consequences. Lump sum payments are approximately one-half of the advertised lotto payout. The advertised pay-out amount is paid out over time, usually twenty years. By making a few calculations the interest rate on the pay-out can be determined. A financial advisor such as HB Capital can assist with this calculation. If the winner can earn more money by investing the lump sum payment, he should consider taking the cash value. If not, the annuity may be an attractive choice. The winner’s financial needs are of paramount importance. If he needs a steady flow of income, taking the lump sum and investing it poorly or loosing it, could be a catastrophe. His other assets, earning capacity, financial responsibility and investment sophistication should be contemplated. HB Capital is one source of help with this decision. Some states pay annuity payments to the winner’s estate if he dies. In others, the payments stop upon death. It may be wise to set up a trust fund prior to accepting the award so that payments will go to the trust until all payments are made. The tax treatment could trump all competing considerations. If the winner can choose the form of payment, he may be taxed on the lump sum immediately. A tax advisor and/or financial consultant, such as HB Capital, should be consulted. Some states require that a buyer to elect the method of payout at the time of the purchase of the ticket. This would suggest that a wise player would seek professional advice prior to purchasing the winning ticket.
