Lottery

The recent lottery winner in Florida won 590 million and chose to take 370 million up front instead of 22.7 million per year over the next 26years. The reason for this has to do with estate taxes. If you accept annual payments and die before the 26 years are up your estate must pay tax on the amount you are expected to receive over the remaining years. Example. 590 million winnings 370 million up front Federal income tax (39.5% plus 3.8% special Medicare tax plus 9.85% MN state income tax) for a total tax of 53.2%. This lowers the 370 million to 173 million. If she were to die then the federal estate tax would be 40% and state estate tax 16% so her estate would net $76 million, a tidy sum I admit but a long way from the $590. Estate tax is due within 90 days of death and must be paid in full. If she had been receiving annual payments her estate would not have the money to pay the tax since all future expected benefits would be subject to estate tax in the year of death.