A winning Powerball lottery ticket was recently purchased in the state of Florida, and the story provides some insight into the impact of the estate tax.
Many of us have dreamed about winning a huge sum of money in a lottery of some kind. It can be quite a bit of fun to sit back and imagine everything you would do with the money.
You may envision traveling around the world. One destination that you may not think about is a trip to an estate planning attorney’s office.
With the Powerball jackpot you can select an annuity or a lump sum payout. Let’s say that you accepted a $300 million lump sum payout.
Right off the bat, you’re going to have to pay income tax. The Powerball administrators keep 25% of the payout to account for taxes.
You have already lost 1/4 the money to the taxman, but now you have to concern yourself with the estate tax. If you are struck by lightning after depositing the check and before you have visited an estate planning lawyer, your family may lose close to 40% of that remaining fortune.
The estate tax exclusion is just $5.34 million in 2014, so everything that exceeds this amount would be subject to the estate tax, and it carries a maximum rate of 40% in 2014.
Even if you are unconcerned about the estate tax because you don’t have millions of dollars, when you imagine yourself as a lottery winner you may question the fairness of this tax.
Fair or not, the estate tax is in place, and it looms large for high net worth individuals. If you have considerable assets, you should certainly take steps to position those assets with tax efficiency in mind.
- An Overview of 2023 Medicare Premiums, Co-Insurance, and Deductibles - January 12, 2023
- Four Fitness Articles from our Move-It Monday Series - January 10, 2023
- Tax Planning for 2023 - January 6, 2023