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What happens to Powerball annuity if you die?

Winning the Powerball jackpot is a dream for many lottery players. When you win the jackpot, you have a choice between taking the prize as a lump sum or as an annuity paid out over 30 years. But what happens if you choose the annuity option and then pass away before receiving all the payments? This is an important question for lottery winners to consider when weighing their prize options.

Choosing Between Lump Sum and Annuity

Powerball jackpot winners have 60 days after winning to choose between receiving their prize as a lump sum payment or as an annuity.

The lump sum option provides you with the full jackpot amount right away. The advertised jackpot amount is based on the annuity option. If you take the lump sum, it will be equal to the jackpot amount multiplied by the annuity factor set by the Powerball lottery. This factor is based on current market interest rates and is typically around 60% of the advertised jackpot. While you get the money right away, your prize will be significantly reduced compared to the annuity amount.

Opting for the annuity provides you with the full advertised jackpot prize paid out over 30 graduated payments over 29 years. The payments increase by 5% each year to help keep up with inflation. The first payment is made right away, with subsequent payments made each year around the anniversary date of the jackpot win.

The appeal of the annuity is that it provides the full jackpot amount. Since the prize is paid out slowly over time, this option also helps lottery winners better manage their money and face less risk of going broke. However, security and planning around this long-term income stream becomes very important.

Annuity Payments and Estate Planning

When you choose the annuity, making estate plans is critical in case you pass away before receiving all the payments. Powerball has clear rules in place for what happens to remaining annuity payments upon the winner’s death.

If you win the jackpot as an individual player, upon your death, remaining annuity payments will go to your estate. This means the future annual payments will be paid to your heirs and beneficiaries as outlined in your will or living trust.

For jackpot winners who play in a group either through a lottery pool or as joint purchasers, the situation becomes a bit more complicated upon the death of one member. For joint prize winners, upon the death of one person, their portion of each annuity payment will go to their estate. For group lottery winners, each member receives a share of each payment based on their contribution to the winning ticket purchase. If one group member passes away, that person’s share gets divided among the remaining living group members – it does not go to their estate.

To ensure your wishes are carried out upon your death and annuity payments properly managed, it is essential to create an estate plan if you win the jackpot and select the annuity option. Proper estate planning includes creating or updating your will, establishing trusts, selecting beneficiaries, and potentially purchasing life insurance policies. Consultation with legal, tax and financial planning experts can help you develop the right strategy.

Taxes on Remaining Annuity Payments

Taxes are another important consideration for remaining Powerball annuity payments upon a lottery winner’s death. The IRS treats lottery annuity payments like income, and they are subject to federal taxes currently up to 37%. State taxes may also apply depending on where you live and where the ticket was purchased.

If payments transfer to an estate, heirs will be responsible for paying taxes on the annual payments at income tax rates. Each heir may pay a different rate depending on their tax situation. There are options like disclaiming payments that heirs should discuss with tax professionals to minimize taxes.

For group winners, taxes get taken out before the shares transfer to remaining members. Those remaining members must then pay taxes again on their shares at their applicable income tax rate. Consultation with tax experts is advised to develop the most tax efficient strategy.

Setting Up a Trust

To provide more control and protection for your Powerball annuity, it is generally advisable to transfer remaining payments to a trust upon your death rather than directly to individual heirs. An irrevocable trust with clear instructions on how you want the annuity funds managed and distributed can help prevent disputes among beneficiaries. The trust can also provide asset protection, allow you to control when beneficiaries access funds, and minimize estate taxes.

A special type called a “purpose” trust can be set up strictly for continued receipt of the annuity after you pass away. An experienced estate planning attorney can help you establish the right trust solution for your situation. Keep in mind if you set up an irrevocable trust, you cannot make changes or close the trust in the future. Proper planning is crucial.

Best Practices for Annuity Winners

Follow these steps as a Powerball annuity winner to ensure your remaining payments are secure if you pass away:

  • Consult with legal, tax and financial experts: Get professional insights on how to structure your estate plan and handle annuity payments.
  • Create or update your will: Specify where you want future annuity payments directed in your will and outline your wishes.
  • Establish a trust: Set up an irrevocable trust designed to receive the remaining annuity funds.
  • Name beneficiaries: Choose beneficiaries for the trust and any life insurance policies you purchase.
  • Consider disclaimer options: Disclaimers allow beneficiaries to decline certain assets, which may help minimize taxes on annuity payments.
  • Discuss group win contingencies: If playing in a pool or group, ensure all members understand what will happen to payments if someone passes away.
  • Review regularly: Revisit your estate plan periodically and when major life events occur to keep it current.

Careful planning can help provide peace of mind that your loved ones will be taken care of even if you are not around to receive all the annuity payments yourself as a Powerball jackpot winner. Consult the experts and take the needed steps to protect your windfall.

Can You Change Annuity Election After Inheriting?

For lottery winners who inherit future annuity payments, an important question is whether you can change the payment election made by the original winner. Powerball’s rules do not allow beneficiaries or heirs to alter the original annuity election.

Once the initial jackpot winner chooses either the lump-sum or annuity, that payment option is locked in. The inheriting estate or heirs must continue receiving payments under the same schedule. There is no opportunity to switch from annuity to lump sum or vice versa.

If the original winner selected the annuity, beneficiaries and heirs will simply keep receiving each annual payment upon the winner’s death until the full prize is paid out. The annuity must run its 30 year course regardless of any inheritance situation.

Spousal Continuation of Annuity Payments

One inheritance scenario where annuity payments do not immediately transfer to an estate or beneficiaries is in the case of married jackpot winners.

If a married lottery winner who chose the annuity dies, Powerball allows for spousal continuation. This means the surviving spouse has the option to keep receiving annuity payments annually until the prize is paid in full. To take advantage of spousal continuation, the spouse must have been named on the original prize claim form.

Spousal continuation provides flexibility for married winners. A surviving spouse can choose to:

  • Keep getting full annuity payments as scheduled.
  • Decline future payments, directing them to another beneficiary.
  • Transfer just their 50% share of remaining payments to an estate or beneficiary and keep receiving their own 50% share.

This allows a surviving spouse to evaluate their current financial situation when deciding whether to keep the annuity or transfer the prize to heirs. While a spouse has options, they cannot change the annuity to a lump-sum payment. The annuity must continue as originally structured by the deceased winner.

Securing Annuity Payments with Life Insurance

For Powerball winners concerned about dependents losing annuity payments upon an early death, purchasing life insurance is an option to consider. This can provide replacement income if you pass away before the full annuity prize is paid.

Choosing a life insurance policy with a death benefit roughly equal to the remaining annuity balance can help hedge risk. Life insurance proceeds can be directed to the trust or beneficiaries who would otherwise inherit the annuity. This provides them a lump sum that can then be invested to generate ongoing income.

Maintaining sufficient life insurance coverage to match the declining annuity balance each year can get very expensive though. Solutions like buying a second-to-die or survivorship life insurance policy for married couples can provide coverage at a lower cost.

As with any major insurance purchase, it is wise for lottery winners to consult qualified advisors when evaluating life insurance options related to Powerball annuity winnings.

Death of a Minor or Non-Resident Jackpot Winner

Special rules apply in cases where a minor under age 18 wins the Powerball jackpot or the winner is a non-U.S. resident without a Social Security number.

If a minor wins, the prize will be paid into a court-administered conservatorship until they turn 18 and can take full ownership of the winnings. At that point, as an adult they can decide on taking a lump sum or annuity. If the minor selected the annuity initially and passes away before turning 18, the remaining prize will go to their estate by law. A guardian or trustee will need to be set up to manage the estate and future annuity payments.

For non-resident winners without a U.S. Social Security number, Powerball requires the annuity prize be taken through an entity such as a trust. This entity must be established to receive annual payments on the winner’s behalf. If the winner dies, the remaining annuity is paid based on directions to the entity’s trustee or board. Proper planning with this entity is crucial to direct payments how the winner intends upon inheritance.

Key Takeaways

Here are some key points to remember about Powerball annuities and inheritance:

  • Remaining annuity payments go to your estate or designated beneficiaries upon your death.
  • Taxes must be paid on inherited annuity payments at applicable income rates.
  • Setting up a trust provides control over distribution of future payments to heirs.
  • Beneficiaries cannot change the original annuity election to a lump-sum payment.
  • Surviving spouses may be eligible to continue receiving annuity payments.
  • Life insurance can provide income replacement if you pass away before the annuity ends.
  • Special rules govern minor winners and winners without a Social Security number.

Thoughtful estate planning is crucial to ensure your financial wishes are carried out and annuity payments properly directed if you win the jackpot and elect the 30-year graduated payment option. Consult with qualified advisors to develop the right strategy for your situation.

Frequently Asked Questions

Can an heir cash out an inherited annuity?

No, heirs cannot cash out or lump sum an inherited Powerball annuity. The annuity must continue as originally structured until the full prize is paid out. Heirs cannot alter the payment schedule.

What if a jackpot winner has no will or trust?

If a jackpot winner passes away without an estate plan in place, state intestacy laws will determine who inherits the remaining annuity payments. The estate would go through probate and payments would transfer according to the state’s defaults based on family relations. Winners should create a will to control payment of the annuity.

Are inherited lottery payments taxable?

Yes, inherited lottery annuity payments are considered taxable income for estate heirs, just as they are for the original winner. Applicable federal and state taxes must be paid on the annual payments. Beneficiaries may want to discuss tax minimization strategies with financial advisors.

Can you name a trust as beneficiary of an annuity?

Yes, lottery winners can designate a trust they have established as the beneficiary of their Powerball annuity. The payments would go to the trust upon the winner’s death based on the trust terms. This provides more control than naming individual beneficiaries.

Do all group winners have to accept continued payments?

For group lottery winners, each member can choose individually whether to accept continued annuity payments upon a member’s death. Group members can accept their increased share, partially accept it, or decline it so it gets redistributed among other willing members.


Winning a massive Powerball jackpot can be life-changing, but also presents complex planning considerations – especially if you choose payment as an annuity over decades. Making thorough estate and trust arrangements to direct future annuity payments in case of your death is crucial. Tax planning is also important for minimizing burdens on beneficiaries. Consult closely with financial, legal and tax professionals to ensure your annuity wishes are carried out properly and your loved ones are secured. With thoughtful planning, you can enjoy peace of mind that your record-breaking lottery fortune will benefit heirs and beneficiaries for many years to come.