Can Lottery Winnings Be Inherited? California

Written by Eric Ridley, California lottery lawyer and estate planning attorney, Ridley Law. Last reviewed September 28, 2026.

Yes, lottery winnings can be inherited. The remaining annuity payments keep coming on the original schedule, to your trust if you assigned them to one, then to anyone named on a Lottery beneficiary designation, and otherwise through your estate. Your heirs cannot make the Lottery pay the balance as a lump sum. The present value of the remaining payments is in your taxable estate, and each payment is taxable income to whoever receives it.

A lottery annuity is inheritable and illiquid, and the second half is what people miss.

If you take the annuity on a Powerball, Mega Millions, or SuperLotto Plus jackpot, you’re taking 30 graduated annual installments. Die in year six and your family receives 24 more payments on the original schedule. They don’t receive the balance. They can’t ask the Lottery to accelerate it, and the Lottery won’t convert it, because the payment option is fixed once elected.

That’s the whole problem in one sentence, and it drives three decisions you make before you ever need them.

Yes, lottery winnings can be inherited

Two different things are being inherited, and they follow different rules.

The money you’ve already received is yours like any other money. It passes under your trust, your will, or intestacy, the same as a brokerage account. If it’s sitting in an account titled to your living trust, it doesn’t go through probate at all.

The payments you haven’t received yet are a right to be paid by the California Lottery, and the Lottery Act has its own list of who gets them. Government Code § 8880.326 sets the order, and the regulations track it (Lottery Regs, §§ 6.2.1 through 6.2.3):

If this is in place at your death	The remaining payments go to	Court involvement
1. An assignment to a Qualifying Trust	Your successor trustee, who distributes under the trust	None
2. A Lottery beneficiary designation form	The surviving beneficiaries named on it	None
3. Neither	Your estate, under your will or intestacy, or your spouse through a spousal property proceeding	Usually a court order and letters

Every row pays on the same schedule. Nothing on that list turns into a lump sum.

Who gets the payments

The California Lottery has a Beneficiary Designation Form. File one.

If a form is on file when you die, the Lottery pays the people named on it. If there isn’t one, the Handbook says payments are made under established Lottery procedures or as ordered by the court, and the regulations point to California law on the disposition of property at death or an appropriate court order (Lottery Regs, § 6.2.3(A)).

Read that second sentence again, because “as ordered by the court” means probate. A thirty-year payment stream running through a probate estate is a slow, public, fee-generating way to hand money to your children, and California’s statutory probate fees are calculated on the value of the estate whether or not the case is complicated.

The form isn’t posted on the Lottery’s website. The Winner’s Handbook says you request it from the Lottery’s Prize Payments Annuity Desk, and you can change it any time by filing a new one. The regulations add the formalities: the designation has to be notarized, on the Lottery’s form, filed during your lifetime, and in effect when you die. If you’re married, it has to come with a Lottery “Consent and Joinder of Spouse” form your spouse signs before a notary, or a court order determining your spouse’s interest (Lottery Regs, § 6.2.2(A), (B)). The regulations list no fee for it.

That spousal consent isn’t a formality. A prize won during the marriage is presumptively community property (Fam. Code, § 760), which means half of each remaining payment is your spouse’s. A designation that sends the whole stream to your children from a prior marriage without your spouse’s signature is exactly what the rule is there to stop.

It’s also the single most common gap I’d expect to find in a winner’s file.

Leaving lottery winnings in your will

The cash, yes. The remaining annuity payments, only if nothing higher on the list applies.

A beneficiary designation on file with the Lottery outranks your will. So does a trust assignment. Your will reaches the payments only when there’s no Qualifying Trust and no surviving designated beneficiary, and even then the Lottery won’t pay your executor until it sees a court order and letters (Gov. Code, § 8880.326(c)(1)). A surviving spouse may be able to use the shorter spousal property procedures in Probate Code Part 2, which § 8880.326(c)(2) expressly allows.

The failure pattern is predictable. A winner signs a new will leaving everything to a second spouse and forgets the Lottery form from ten years ago naming the kids. The Lottery pays the kids. The will never gets a vote on the annuity.

So “can you will lottery winnings” has a practical answer: coordinate the will, the trust, and the Lottery’s form so they say the same thing, and review the Lottery’s form every time you’d review a retirement account beneficiary. How beneficiary designations work is the general rule, and the lottery version is no different.

The trust assignment, and why it exists

There’s a second route, and it’s the one the regulations were built for.

A winner receiving installments can assign them to a Qualifying Trust, meaning a revocable living trust the winner established for their own benefit under California law, which may become irrevocable when the winner or a co-grantor dies (Lottery Regs, § 6.1.2(A); Gov. Code, § 8880.325(a)). It takes a Lottery-approved form before a notary, spousal consent if you’re married, filing at least 60 days before the next payment date, and $500.

Once the trust holds the right to the payments, they don’t pass through probate, because the trust already owns them. And if you’re incapacitated, your successor trustee has authority over the payment stream without anyone going to court for a conservatorship.

That second one is worth more than people expect. A durable power of attorney may or may not reach an annuity the Lottery is administering, and finding out during a medical crisis is the wrong time. Incapacity planning is the part of an estate plan that gets used most and thought about least.

At death, your successor trustee notifies the Lottery on its forms and gives it a complete copy of the trust (Lottery Regs, § 6.2.1). If the trust splits into sub-trusts for your children, the Handbook says the Lottery can pay those irrevocable sub-trusts directly, as long as the right form was on file before you died. That’s one more reason the assignment should be done while you’re healthy and reviewed whenever the trust changes.

If you’ve assigned the payments to your trust, the beneficiary designation stops doing much for those payments, because the trust is first in line. Keep a designation on file anyway for anything not assigned, and make sure the two point the same direction.

The trust route is covered in more detail at can a trust claim lottery winnings in California. The short version is that a trust cannot claim the prize, and it can absolutely receive the payments afterward.

No lump sum from the Lottery, but heirs can sell

Not from the Lottery. When there’s no trust and no designated beneficiary, the regulation says the unpaid prize “will be paid in accordance with the scheduled payments for that Prize” (Lottery Regs, § 6.2.3(A)). Neither § 8880.325 nor § 8880.326 gives an heir the right to accelerate. The Handbook says it in one sentence: “The annuity payment option cannot be changed.” The Powerball game’s own FAQ says the balance goes to the winner’s estate and payments continue to heirs on a court order.

What heirs can do is sell. A payee, which the regulations define to include a winner’s heir or beneficiary, can assign future payments to a buyer under a court order that meets the conditions in Gov. Code, § 8880.325(d) (Lottery Regs, § 6.1.4). The court has to find that the seller had independent counsel, understood the deal, and had a chance to get financial and tax advice. The buyer pays a lump sum at a discount, and the Lottery pays the buyer.

The payments can also be pledged as collateral for a loan under Division 9 of the Commercial Code (Gov. Code, § 8880.325(c); Lottery Regs, § 6.1.3), with the lender’s recovery limited to the regular payments.

Either route converts a payment stream to cash at a price. What that price is depends on the discount rate the buyer or lender demands, and it’s worth having someone run the math, including the tax on the sale, before anyone signs.

If you take the Powerball annuity and die: a walk-through

The Powerball annuity is one immediate payment followed by 29 annual payments that increase by 5% each year (Powerball FAQs). Mega Millions works the same way (Mega Millions FAQs). Here’s a hypothetical $100 million advertised jackpot, a winner who dies right after the sixth payment, and an estate whose other assets have already used the $15 million exemption.

Item	Illustrative amount
Advertised annuity jackpot	$100,000,000
First payment, before tax	$1,505,144
Received by the winner (six payments)	$10,237,855
Payments left at death	24, totaling $89,762,145
Next payment to heirs, before tax	$2,017,036
Present value of the 24 payments at a 5.4% discount rate	$43,978,931
Federal estate tax on that value at 40%	$17,591,572, due nine months after death
Next payment after 37% federal income tax, before the § 691(c) deduction	About $1,270,700

The discount rate is the September 2026 § 7520 rate of 5.4% (IRS, Section 7520 interest rates), applied to each remaining payment. The rate moves monthly and is set by the month of death, so the real number depends on when it happens. These are round illustrations, not a return.

Look at the last two rows together. The estate owes about $17.6 million in cash nine months after death, and the asset that generated the bill pays about $1.3 million after income tax next year. Unless something else in the estate covers it, the family is looking at a court-approved sale of the payments at a discount, a loan against them, or a request to the IRS for more time.

Now run the same facts with an estate under $15 million total and the estate tax row is zero. The heirs just keep receiving checks and paying income tax on them. That’s the outcome for most annuity winners, and it’s why the planning below is about the families who are over the line.

Estate tax on payments you didn’t live to collect

Two different taxes, and they behave differently. Income tax comes further down. Estate tax comes first.

Estate tax. The present value of the remaining payments is included in your taxable estate at death (IRC §§ 2033, 2039). An annuity is awkward here. The estate tax is due about nine months after death (IRC § 6075(a)), in cash, calculated on the value of a stream that arrives over the next twenty years. An estate can owe a large bill on an asset it cannot liquidate.

Most winners never see this. The federal exemption is $15 million per person in 2026 (IRC § 2010(c); Rev. Proc. 2025-32) and $30 million for a married couple using portability, and California has no estate tax. If your remaining payments plus everything else is under those numbers, the estate tax question is theoretical. Above them, the rate is 40% (IRC § 2001(c)) and the liquidity problem is real, which is one of the classic uses for life insurance held outside the estate. See California estate tax in 2026 and portability and the 706 most couples skip.

How the payments are valued. Annuities are valued under IRS tables, using an interest rate equal to 120% of the federal mid-term rate for the month of death, rounded (IRC § 7520(a)). The regulations carve out “restricted beneficial interests,” where a standard table factor can’t be used (Treas. Reg. § 20.7520-3(b)). The question estates have litigated is whether a lottery annuity’s value should be discounted because it can’t be freely sold.

The federal circuits split on it.

In Shackleford v. United States (9th Cir. 2001) 262 F.3d 1028, a retired Air Force officer won the California Lotto in 1987 and died after three of twenty payments, at a time when California barred any assignment of lottery payments. The tables valued the remaining payments at $4,023,903. The district court found the tables produced an unrealistic and unreasonable result because they ignored the lack of marketability, and valued the payments at $2,012,500. The Ninth Circuit affirmed. The Second Circuit reached the same result for a Connecticut Lotto prize in Estate of Gribauskas v. Commissioner (2d Cir. 2003) 342 F.3d 85, where the parties had stipulated that the transfer restrictions depressed the value.

The Fifth Circuit went the other way in Cook v. Commissioner (5th Cir. 2003) 349 F.3d 850, holding that non-marketability is already an assumption built into the tables. The Sixth Circuit agreed with Cook in Negron v. United States (6th Cir. 2009) 553 F.3d 1013, reversing a district court that had followed Shackleford and Gribauskas.

Shackleford is Ninth Circuit law, and the Ninth Circuit covers California’s federal courts. That’s a real advantage for a California estate, but it isn’t automatic. The estate still carries what Shackleford called the “considerable burden” of proving the tables are unrealistic and a better method exists, which means expert testimony. And the facts have moved since 1987: California now allows court-approved sales of lottery payments under § 8880.325(d), so the IRS has an argument that a market exists. Plan on the table value and treat a discount as something your executor may be able to win, not something to build the plan around.

The liquidity problem, and what solves it

If your estate will be taxable and a large part of it is an annuity, somebody has to find cash. The options, roughly in the order I’d look at them:

An irrevocable life insurance trust. A trust buys a policy on your life, you make gifts to the trust to pay the premiums, and at death the proceeds arrive in cash, outside your estate, when the tax is due. The trust can then buy assets from your estate or lend it money, and the estate pays the IRS. The trust should own the policy from the start. A policy you own and transfer to the trust is pulled back into your estate if you die within three years (IRC § 2035(a)). Do I need an irrevocable life insurance trust? covers the structure, and the ILIT glossary entry has the short version.

A cash reserve. Some of every annual payment goes into an account set aside for the estate tax. It’s unglamorous and it works, as long as nobody raids it.

Lifetime gifts. Payments you receive and give away during life, using the annual exclusion or exemption, aren’t in the estate at death. Giving lottery money to family has the mechanics.

More time from the IRS. The IRS can extend the time to pay estate tax for reasonable cause, for up to ten years (IRC § 6161(a)(2)). Interest runs, and it’s discretionary. An estate whose main asset is a non-accelerating annuity has a decent reasonable-cause story, but I wouldn’t build a plan on the IRS saying yes.

A court-approved sale or a loan. The last resort, covered above. It works, and it’s the most expensive way to raise the money.

What your heirs owe in income tax

Income tax. Each installment is ordinary income to whoever receives it, in the year they receive it. Your beneficiaries step into your position and pay federal tax on each payment. California doesn’t tax California Lottery prizes at all, under Government Code § 8880.68, and that exemption covers amounts received under an assignment as well.

The federal term for this is income in respect of a decedent. Payments you were entitled to but didn’t live to receive are taxed to the estate or the person who acquires the right, when they receive them (IRC § 691(a)). There’s no step-up in basis for it, the way there is for stock or a house (IRC § 1014(c)).

If the estate paid estate tax on those same payments, the heir gets a deduction for the estate tax attributable to them (IRC § 691(c)). It softens the double hit without eliminating it. In the walk-through above, a share of the $17.6 million estate tax becomes a deduction against the income tax on each payment as it arrives. Your heirs’ CPA needs the estate tax return to compute it, and it’s routinely missed.

Tax preparation isn’t my practice. The estate plan should be built with a CPA who has done this before, and California lottery taxes covers the rest of the tax picture.

If you’re deciding between cash and annuity right now

You have 60 days from the approval of your claim to elect the cash option, on a notarized California Lottery Jackpot Payment Election form (CSL 1329 for Powerball, CSL 1280 for Mega Millions). Do nothing and you get the annuity by default. A group that can’t agree also gets the annuity by default. The form itself says your election “may not be changed at a later date.”

I’m not going to tell you which is right without knowing your age, your health, and your family.

The annuity is often the better financial answer and the worse planning answer. It costs less in total federal tax because the income is spread across thirty years instead of stacking into one. It also creates an asset your family can’t sell, can’t accelerate, can’t easily divide among four children with different needs, and can’t use to pay the estate tax it generates.

Can’t sell, in that sentence, means can’t sell without a court order and a discount.

The cash option is the opposite. Higher tax bill in year one, and complete freedom afterward. You can fund trusts, make gifts, buy insurance, and restructure whenever your life changes.

If you take the annuity, do the assignment work early. The 60-day filing requirement means the trust has to exist and the paperwork has to be in before a payment date, and that isn’t something to start the month it matters. The full comparison is at lump sum or annuity in California, and Powerball and Mega Millions winners in California covers the multistate games. If you’ve already claimed, after you’ve claimed a California lottery prize is the checklist.

Questions I get asked

Can a lottery annuity be inherited?

Yes. Remaining installments are paid to the beneficiaries named on a California Lottery Beneficiary Designation Form, or through your estate if no form is on file. The payments continue on the original schedule.

Can you inherit lottery winnings?

Yes. Cash the winner already received passes like any other asset, under a trust, a will, or intestacy. Unpaid annuity installments pass to the winner’s Qualifying Trust if one was assigned, then to surviving beneficiaries on the Lottery’s designation form, and otherwise to the estate under a court order (Gov. Code, § 8880.326). The heir pays federal income tax on each payment, but California doesn’t tax it.

Can you leave lottery winnings in your will?

Cash, yes. Remaining annuity payments go to your will only if you never assigned them to a trust and have no surviving beneficiary on the Lottery’s designation form, because both of those outrank a will. Even then, the Lottery pays your executor only after a probate court issues letters. A trust assignment avoids that.

If I take the Powerball annuity and die, what happens?

Your heirs receive the remaining annual payments. They cannot convert them to a lump sum, because the payment option cannot be changed after it’s elected. The present value of what remains is included in your taxable estate.

Can my family cash out the remaining payments?

Not through the Lottery. Third-party companies buy annuity streams at a discount, and California allows it through a court-approved assignment under Government Code § 8880.325(d), with findings that the seller had independent counsel. Payments can also be pledged as loan collateral. What it costs is a question of discount rate, and it’s worth having someone run the math before signing.

How many years is a lottery annuity?

Powerball, Mega Millions, and SuperLotto Plus jackpots pay 30 graduated annual installments. The payments increase over the term rather than staying level, so the first is a good deal smaller than the last. For Powerball and Mega Millions, each payment is 5% larger than the one before.

What is a lottery estate?

It’s the estate of a winner who dies before all the installments are paid. It usually holds the cash already received plus the right to the remaining payments, and it may owe federal estate tax on the present value of those payments nine months after death while receiving them one year at a time.

Can you pass lottery winnings to family if you die?

Yes, both the annuity payments and any cash already received. The difference is that cash passes through your trust or will like any other asset, and the annuity passes through the Lottery’s beneficiary designation or through probate if you never filed one.

Does California tax the annuity payments my heirs receive?

No. Government Code § 8880.68 prohibits state and local taxes on prizes awarded by the California Lottery, including amounts received under an assignment. Federal income tax still applies to each payment.

Should I put my lottery annuity in a trust?

If you’re taking the annuity, usually yes, because it keeps the payment stream out of probate and gives your successor trustee authority if you’re incapacitated. It has to be a revocable living trust you established for your own benefit, and it costs a $500 fee plus a notarized Lottery form filed 60 days ahead of a payment date.

Talk to Eric

Read this before you act on anything above

This is general information, not legal advice. Reading it doesn’t make you my client, and I don’t know your facts. Your marital status, the size of the rest of your estate, and when you die all change the answers.

The numbers are illustrations. The Powerball walk-through uses a hypothetical jackpot, a single month’s § 7520 rate, and simplified tax assumptions. It is not a valuation of any real prize or estate.

Lottery rules are the Lottery’s. Lottery regulations cited are from the Commission-approved edition dated June 16, 2026; confirm current forms, fees, and deadlines with the California Lottery.

Tax figures are for 2026 and they change annually. Tax preparation is not my practice. Work with a CPA or enrolled agent on the estate tax return and your heirs’ income tax.

The valuation cases are unsettled. Whether a lottery annuity can be discounted for lack of marketability depends on the circuit and on the evidence, and the IRS contests it.

Ridley Law, Eric Ridley, California Bar No. 273702. Practice limited to estate planning, trust administration, and uncontested probate, serving Ventura, Santa Barbara, and Los Angeles counties. This is attorney advertising.

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