Note: Updated on June 18, 2026 for Senate Bill 6347 which was signed March 24, 2026.
A while back I talked about Lottery Tax Planning for a Billion Dollar Drawing. And what I said in the earlier article still stands… But the recent bumps in the Washington state estate tax rate made me think a quick update might be good.
For purposes of this blog post, I’m going to talk in terms of the recent, late December 2025 $1,500,000,000 Powerball. That drawing gave the winner an option. Receive $50,000,000 annually for three decades. Or, alternatively, take a roughly $700,000,000 lump sum.
And that choice—annuity vs lump sum—is the part I want to focus on…
The TLDR Summary: Take the Lump Sum
To cut to the chase, with large Powerball lottery winnings, the safe tax plan is probably to take the lump sum. This advice appears to be the opposite of what I saw reported in the media. Most experts appeared to think $50 million a year for thirty years makes more sense. And just superficially? That advice sounds right.
But seriously you really don’t want to burden heirs with the catastrophic estate tax risks of an annuity. And a quick illustration explains why.
Say you were confronted with the exhilarating choice of either $50 million a year for three decades versus a lump sum $700 million. And then (sorry) say you died the day after you won.
In this situation, your estate owes about $140,000,000 in Washington state estate taxes. And about $224,000,000 in federal estate taxes. That total equals $364,000,000.
But the problem here: Your estate and heirs only “have” enough cash to pay the $364,000,000 if you took the lump sum. In other words, if you took the $50,000,000 annual annuity? They don’t have the cash to pay the estate taxes.
Paying the Estate Taxes Off Over Time
In other words, in the tragically absurd scenario where you took the annuity and then died, your heirs will find themselves paying off a $364,000,000 estate tax liability using the $50,000,000 annual annuity.
That sounds workable. But let me step you though the details so you see it’s a terrible outcome.
First thing to note, the federal and state income taxes on the $50 million might run about $15 million for a Washingtonian given the state’s new 10% millionaire’s tax has become law. So you don’t have $50 million each to grind down the debt. You have about $35 million after income taxes.
Second thing to note, because you owe the state and the federal government several hundred million dollars in taxes? Your estate accrues, one way or another, interest on the hundreds of millions of dollars of tax debt. Close to $24 million the first year, roughly $23 million in years two and three, and then ever smaller amounts as the “loan balance” shrinks.
Now, yes, your heirs will slowly be able to pay off the estate tax lability loan using the after lottery payments: $11 million of principal the first year, $10 million of principal the second year, and increasingly large amounts each future year. But the paydown process will take decades.
And that’s the surprise here. Taxes not only reduce the net winnings (by more than 80%.) Taxes also delay when heirs receive their inheritances. And worse than that , some heir will find him or herself juggling estate finances over decades to pay off the nearly $400,000,000 estate tax bill.
Thus my advice: If you ever do win a big state lottery? Yeah, absolutely take the lump sum.
Closing Comments and Caveats
Three more comments, too, before I close.
First, comment: I was a little rough in my accounting. The federal tax rate for example isn’t exactly 40%. Rather, it’s 37% for the federal income tax and then 3.8% for the net investment income tax so a total of 40.8%. The federal estate tax is a flat 40% but only after any state estate tax is paid and only above $15 million (roughly). The 20% Washington state tax applies only above $3 million and uses a $9 million phase in range where the rate starts at 10% and then rises to 20%. Finally, federal income tax calculations allow a deduction for the federal and state estate taxes paid. But Washington state does not. Thus, te state in effect levies both a 20% estate tax and a 10%-ish income tax on the same money and without regard to the 40% federal estate tax or the roughly 40% federal income tax. on the money.
Second comment: The fundamental, structural problem here is the estate needs to pay taxes on illiquid assets not easily converted to cash. And note this isn’t only a problem with something like a lottery annuity. Illiquid business and investment interests may create a similar timing problem for families who owe estate taxes.
Third comment: A change in domicile can fix or address a state estate tax problem as well as reduce a state income tax burden. Moving from Washington state to Nevada, for example, potentially zeros out your Washington state estate and income taxes. (If you really did win a Powerball lottery and you currently reside in Washington state? You’d probably want to seriously look at a domicile change) You can’t however do something similar with federal estate and income taxes. Thus, moving from Washington state to, say, Luxemburg does not zero out your federal estate and income taxes.
Additional Resources
Washington State Estate Tax Calculator
Washington State Millionaire’s Tax Residency Rules
Changing Your Washington State Residency (or Domicile) for Estate Tax Reasons