Skip to Content

Is Powerball annuity paid to heirs?

Winning the Powerball jackpot is an incredibly exciting event that most people only dream about. When you win millions of dollars in the lottery, one of the biggest decisions you’ll need to make is whether to take the lump sum cash payment or the annuity payments paid out over 30 years.

If you choose the annuity, an important consideration is what happens to the remaining payments if you pass away before all payments have been made. Will your heirs continue receiving the annuity payments, or will the payments cease upon your death?

Do annuity payments continue after death?

The short answer is yes, if you win the Powerball jackpot and elect the annuity payment option, the remaining payments will be paid to your designated beneficiaries after your death. Powerball annuity payments do not cease completely if the winner passes away.

However, it is important to note that federal and state taxes will still need to be paid on each payment. So the amount inherited by beneficiaries will be reduced accordingly.

How Powerball annuity payments work

When you win a massive multi-million dollar lottery jackpot like Powerball, you are given two options for how to receive your prize money:

  • Lump sum payment – A one-time, lump sum payment of the jackpot prize money, which is much lower than the advertised amount due to taxes. For example, the cash value may be 30-60% of the total.
  • Annuity payments – The full jackpot prize money is paid out in 30 graduated payments over 29 years. The payments start out small and increase by 5% annually.

The annuity option is designed to protect lottery winners from being overwhelmed by the responsibility of so much money at once. It provides a stable source of income for decades. The annual increases help keep up with inflation over such a long period.

When you choose the annuity, the lottery organization purchases a special 30-year bond that will provide funding for the annual payments. You do not receive the full lump sum, but rather just that first initial annual payment.

Annuity payments transfer to heirs after death

Here is how the annuity payment structure works if the winner passes away:

  • Any leftover annuity payments will be paid out to the winner’s designated beneficiary or heirs.
  • The beneficiary must continue to pay applicable taxes on each payment before inheriting it.
  • Any minors named will have the payments held in a trust until they come of age.
  • The annuity payments do not increase after the winner’s death and pass directly to beneficiaries.

Essentially, the annuity contract continues as structured, with beneficiaries inheriting what remains of the guaranteed 30 graduated payments. This provides a level of financial security for family members after the winner’s death.

Designating beneficiaries

To ensure annuity payments transfer to heirs, Powerball winners must designate beneficiaries to inherit any remaining payments upon their death. This is extremely important and should be handled right away after winning.

Here are some key things to know about assigning beneficiaries:

  • Each state has official beneficiary designation forms that must be filled out.
  • Winners can split payments between multiple beneficiaries. The percentage for each must be specified.
  • Beneficiaries can be individuals, trusts, charities, etc.
  • Winners can change beneficiaries over time if needed.
  • Minors can be named as beneficiaries, but their payments will be held in trust.
  • Beneficiaries should be notified once designated.
  • Powerball winners should seek legal and financial advice on structuring beneficiaries.

Properly setting up beneficiaries ensures all remaining annuity payments after the winner’s death will continue according to their wishes. It prevents complications and provides security for loved ones.


There are important tax implications to be aware of both for the initial Powerball winner and any beneficiaries who may inherit annuity payments:

  • Federal income taxes – Federal taxes must be paid on every annuity payment at the prevailing federal rate. This is currently 24% up to $80,800 and 37% above that. State taxes also apply.
  • Estate taxes – Powerball annuities may be subject to federal and/or state estate tax when inherited, depending on estate size.
  • Withholding – Taxes are withheld from each payment, however additional taxes may need to be paid if withholding is insufficient.
  • Tax reporting – Heirs receiving inherited annuity payments will need to report them on their tax returns as income.

Consulting reliable tax advisors is highly recommended for both winners and beneficiaries to stay compliant on taxes.

Structuring beneficiaries

Choosing the right beneficiaries for a Powerball annuity requires some careful consideration. Winners need to think through who they want to provide for and how much responsibility those people can handle.

Here are some tips on how to structure beneficiaries for a Powerball annuity:

  • Consider dividing payments between a primary beneficiary who will receive largest share, secondary beneficiaries and final beneficiaries to receive any last payments if they outlive earlier beneficiaries.
  • Designate percentages for each beneficiary clearly.
  • Seek legal and financial advice to set up trusts as needed to manage inheritance for minors or legally incapacitated beneficiaries.
  • A trust can be designated as beneficiary to provide ongoing financial management of payments.
  • Update beneficiary designations as life circumstances change such as marriages, divorces, new children, etc.
  • Outline instructions on how annuity funds should be used by each beneficiary.

Taking time to carefully structure beneficiaries helps ensure financial stability is passed down through generations. Proper planning also prevents potential squabbles between heirs over who should receive remaining annuity payments.

Beneficiary payment options

Beneficiaries may have the option to receive their inherited annuity payments as either:

  • Ongoing annuity payments – Receive payments annually on schedule just like original winner.
  • Lump sum payment – Receive commuted value of remaining payments in one lump sum, at a discounted amount. May have tax implications.

It depends on the state and specific annuity structure. Some beneficiaries may not have a choice while others can select their preferred payment method.

There are pros and cons to each approach. Lump sums provide immediate funds but less overall money. Ongoing annuities provide more total money stretched over time.

Beneficiaries should consult financial advisors to understand their specific options and optimal approach.

Death of final beneficiaries

What happens if the primary winner and all designated beneficiaries pass away before the completion of the 30 graduated payments?

If the winner and beneficiaries both die early, the remaining annuity payments will revert back to the state lottery commission that originally issued the prize.

At that point, the lottery organization is released from its obligation to pay out any additional annuity funds. So it’s important for winners to designate plenty of backup beneficiaries to continue payments just in case.

Annuity payment inheritors must pay taxes

As mentioned previously, any beneficiary inheriting Powerball annuity payments must continue to pay applicable taxes on the income, even after the winner’s death.

Here are some key tax rules beneficiaries should be aware of:

  • Federal taxes must still be paid every year at the beneficiary’s tax rate.
  • State taxes may still apply depending on location of beneficiary versus original winner.
  • Income reported on beneficiary’s tax return when received.
  • Withholding amounts may need to be adjusted to cover new tax rate.
  • No special tax exemption for inherited lottery winnings.

Inheritors should plan for reducing each payment by up to 50% for taxes depending on their specific tax bracket. Accurately reporting and paying taxes on inherited annuity winnings is extremely important.

Seek tax help after inheriting payments

Managing taxes on inherited annuity payments can be complicated, especially with progressive annual increases. Beneficiaries should work with knowledgeable tax professionals to ensure compliance.

Some tips for inherited annuity tax planning:

  • Review withholding amounts and adjust to cover taxes appropriately.
  • Make quarterly estimated tax payments if needed to avoid underpayment penalties.
  • Save records of taxes paid in case of audit.
  • Report annuity payments accurately on annual tax return.
  • Stay current on any changes in federal or state tax rules.
  • Consider consulting a tax professional or CPA for guidance.

Proper tax planning ensures beneficiaries don’t run into issues with underpayment down the road. With so much money at stake, it’s worth getting professional tax help.

How to claim inherited annuity payments

When beneficiaries are in line to start receiving leftover annuity payments, there are specific steps that must be taken to claim the funds:

  1. Contact the state lottery commission to notify them of the winner’s passing.
  2. Provide a certified copy of the winner’s death certificate.
  3. Complete any required claim forms provided by the lottery commission.
  4. If a minor, the guardian will handle the claim process on their behalf.
  5. Provide any tax identification information required, such as Social Security numbers.
  6. Select preference for ongoing annuity payments or lump sum if given the option.
  7. Specify account for direct deposit of ongoing annuity payments.

Each state will have their own specific requirements, but the basic process is essentially the same. The lottery needs formal notification of the winner’s passing and inheritance beneficiary documentation.

Once confirmed, the lottery will then initiate annuity payments based on the winner’s original payment schedule and instructions. Ongoing tax payments and reporting will be the responsibility of inheriting beneficiaries.

Lottery protections from creditors

One advantage of annuities for beneficiaries is protection from creditors. Payments that are properly inherited directly from a lottery commission annuity are generally shielded from any creditors of the inheritor.

However, there are some exceptions once funds are disbursed. Here are some key protections and risks:

  • Funds are protected directly from lottery while still in state’s annuity account.
  • Creditors cannot “attack” future payments the beneficiary has rights to.
  • However, once funds are disbursed, they become fair game for creditors.
  • So beneficiaries should avoid co-mingling annuity funds once received.
  • Disbursed funds can also impact eligibility for needs-based government aid until spent.

The annuity provides the advantage of keeping the bulk of funds protected by the state until incremental disbursements are made. Beneficiaries should exercise discretion in how they use disbursed amounts to maintain protections.

Annuity payments to minors

When a minor is named as a beneficiary for lottery annuity payments, there are special considerations to ensure proper management and oversight of the funds until they legally come of age.

Here are the key steps involved in managing annuity payments to a minor:

  • A guardian must be formally appointed to manage finances on behalf of the minor.
  • A trust is established, with the minor as the beneficiary and the guardian as trustee.
  • The lottery commission pays the annuity funds into the trust.
  • The trust governs use of distributions until the minor reaches age of majority.
  • Payments and taxes are managed by the trust.
  • Any remaining funds transfer fully to minor when they come of age.

The guardian has a fiduciary duty to administer the trust properly in the minor’s best interest. Annual accountings to the court may be required.

For larger lottery inheritances, it is wise for the guardian to seek legal counsel to ensure the trust establishes prudent controls over use of annuity funds during the years before the minor comes of age.

Implications for means-tested government aid

While annuity funds are protected and anonymous before disbursement, once an heir receives a payment, it could impact eligibility for means-tested government programs until spent.

Beneficiaries receiving needs-based assistance should be aware of potential impacts:

  • Medicaid – Eligibility and coverage could be disrupted until payment is fully spent.
  • SSI – Could be disqualified until funds are spent down below $2,000 limit.
  • SNAP – Disbursements count toward income limits until fully spent.
  • Subsidized housing – Annuity income could make beneficiary ineligible.
  • Other aid – Any program with income limits could be affected.

Annuity inheritors dependent on public assistance should check carefully before claiming funds and be prepared for adjustments in benefits. Spending through an inheritance quickly is often smartest to avoid disruption.

Of course, for those not needing assistance, payments can be put to good long-term use for a beneficiary’s future security.

Seeking sound financial advice

Receiving a large, ongoing inheritance of lottery annuity payments requires sound financial management. Beneficiaries should educate themselves and seek professional guidance.

Some tips on managing a Powerball annuity inheritance wisely include:

  • Consult fee-only certified financial planners for unbiased advice.
  • Refrain from making quick, uninformed decisions on use of funds.
  • Create a long-term budget to allocate payments responsibly.
  • Be discreet with information to avoid potential scams or jealousy.
  • Take time to consider best uses aligned with your values.
  • Invest portions prudently for the future.
  • Let logic, not emotion, drive big financial decisions.

With sound planning, Powerball annuity payments can provide lasting security and fulfillment for both winners and inheritors alike.


Winning a jackpot prize from Powerball can be life-changing, and the choice between taking a lump sum or annuity payments is big decision. While a lump sum provides quick cash, annuities offer larger overall returns stretched out over decades.

For winners who opt for the annuity, it provides reassurance to know any remaining payments they don’t receive during their lifetime can pass to designated heirs and beneficiaries. Careful planning is needed to determine the optimal beneficiaries, get all proper designations in order, and ensure your financial wishes are carried out.

Beneficiaries inheriting annuity payments do have tax obligations they must handle and may need to take over management of trust funds established for minors. But overall, the annuity provides somewhat steady, protected income over many years.

Hopefully this breakdown offers clarity on how Powerball annuity payments can and can’t be transferred after a winner’s passing. With some guidance from trusted advisors, both winners and beneficiaries can benefit greatly from Powerball annuities over the long run.