Lottery Annuity

A New Fascinating Concept

Those who are fascinating by the concept of the lottery would agree that winning a lottery prize is a dream that they nurture in their day and night reverie. Lottery is a luck-challenging contest where lottery-tickets are sold and one, or several, winning tickets receive prize money over it.

When the lottery winnings are paid to the winner in form of annuity payments, it is said to be Lottery Annuity. There are several factors that a winner may have to contemplate whether he would prefer to have single shot payment of his winnings or in regulated parts.

These factors are:

- the amount of the lottery jackpot

- the cash worth of the lottery

- the number of the annual payments

- the interest rate offered on the annual payments

To explain more about this type of Annuity is a series of annual payments of the lottery winnings that are stretched over a span of time. The face-value of the amount of lottery refers to that amount that is advertised to the masses. As a rule the lottery winner does not gets the entire sum at one go.

The cash-value refers to that amount which is precisely corresponds to the sum of payments along with the specific rate of interest. By and large, the cash value of the state lottery is about half the size of the face-value amount. The installment of the Lottery Annuity is usually paid by stretching it over the span of 26 years.

In case the winner of the lottery dies within the payment period of the Annuity, certain State regulations get functional as per their corresponding rules. Commonly, most of the state lotteries keep the provision of payments to the heir of the winner or to his/her declared beneficiary.

Before committing to Annuity payment of lottery, it is important to clearly understand its taxation issues also. Whatever the form of payment the winner selects, be it the lump-sum option or installment one, the tax is charged at once under the ‘Doctrine of Constructive Receipt’.

The tax charged remains more or less same for either of the payment option with slight deviations in the case of state lotteries. Those who want to keep tax deduction at bay from their winnings must sign conformity at the time of purchase of the lottery ticket.

This sort of situation comes with zero-option of selecting the payment mode after the lottery is won. In case the lottery winner has to make a bigger purchase of some property or worthy asset then it is better to go for a one shot lump-sum payment rather than for Lottery Annuity. Judicious calculations must also be made to determine the net-value of the prize money.

As a final point, it would be better for winners to counsel a tax advisor or a financial consultant before deciding for this option.

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