Lotto, Taxes, Death

Last weekend there was a 40 million dollar lottery(Or Lotto as we call it here in Florida). There was only one winner.

An 84-year-old Palm Springs woman is the lone winner of Saturday's $40 million Florida Lotto jackpot. She claimed her winnings Wednesday.

Maria Cruz chose a one-time lump sum payment of $21,355,093.34. The money should be wired into her bank account by 2 p.m. today, lottery spokesman Alfred Bea said.

Cruz, who has eight children, was moved to buy a lottery ticket after her daughter, Anneria Francisco, dreamed about winning $15 million playing the Florida Lotto, lottery officials said.

Cruz sent a son to play the numbers 13, 15 and 18, which were part of Francisco's dream, officials said.

"They're a large family," Bea said. "They're from the Dominican Republic and just really seem to be a close-knit, fun family. They were enjoying the experience."

It's a slow news day when you find TFM talking about the latest lotto winner.

Actually I have a reason. First I'll congratulate the good fortune that has fallen upon the Cruz family and wish them well.

The winner is 84 years old. If the Cruz family had been wise wiser or gotten advice first, they wouldn't have Maria Cruz collect the jackpot but instead split it between her children. Let me tell you why.

As you noticed, almost 44% of the jackpot was withheld for taxes etc by the state of Florida. There is no state income tax, and the highest federal tax bracket(I do tax preperation but not for people who earn millions in a year) is lower than 44% I'm almost positive. For some reason FL must offer a smaller jackpot to a winner if a person takes a lump sum. Either that or they just withdrew more money than necessary and Maria Cruz will get a refund.

The thing is, that Cruz is on in years. She is 84 and reasonably speaking she won't live more than a few more years. When she dies, that 21 million(or what's left of it) will be subject to estate taxes. Estate taxes are both state and federal. This money is going to be taxed twice, and at high levels in a short period of time. Lets say Cruz doesn't spend a dime, her 21 million will be worth less than 10 million after her death.

Note- My figures may be off. In 1997 my father died leaving an estate of $725,000. The first $600,000 wasn't taxed. The taxes on the last $125,000 was roughly half of that amount. I was the co- exectutor of my father's estate.

That was almost 10 years ago. The estate tax has been changed considerably. It may even be eliminated one day. My estitmates on taxes may be off somewhat, but the gist of what I'm saying is still valid.

If Maria Cruz had been wiser(assuming she hasn't thought this out already), she would have made her children or grandchildren the winner(s) instead of herself. A financial planner would have advised any person of Cruz' age this. Who wants to give $30 million of a $40 million lottery jackpot to the government when you can avoid some of it?

Update- Jim of State of Sunshine explains here how the jackpot amount is determined. Its based on a 30 year investment. So when they say 40 million, that's if you take the payment in 30 yearly payments. In an email James told me the lottery always says estimated jackpot. Estimated my babut. Can the state of Florida be sued for false advertising?(Cue the sarcastic laughter)

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