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Learn More about Selling Lottery Payments


Q. Why do people sell their prize payments?
A. Some winners choose to sell payments to meet defined near-term needs: they will want to buy a home, pay bills, address a medical emergency, or expand a small business. Other winners (working with their financial advisors) will sell some of their future payments and invest the proceeds so as to better prepare for the day that their annual payments will stop. The executor of the estate of a deceased prizewinner may need to sell payments so as to pay taxes and distribute the net proceeds to the winner’s heirs. Simply stated, there are as many different reasons for selling future payments as there are people with different life circumstances.

Q. Why do I need a judge's permission to sell my payments?
A. Nearly every state lottery has a statute that bars the sale or assignment of lottery prize payments without the prior approval of a court.

Q. How long does the process take?
A. The process can take anywhere from two weeks to two months, depending on the jurisdiction. Initial underwriting and contract processing can be completed quickly. The key factor is the courts' calendar. In some jurisdictions, these transactions can be processed very quickly. In other jurisdictions, it can take longer. Encore will work with the seller to make the process as efficient and uncomplicated as possible.

Q. Can I sell some (rather than all) of my remaining payments?
A. Yes. Typically, Encore purchases only a portion of the remaining payments so as to help a seller meet a defined near-term financial need. Whether the seller is seeking to raise fifty thousand dollars or twenty million, Encore can structure a transaction tailored to the individual seller's needs.

Q. How does the law in my state work?
A. Every state's law is slightly different. In most Lottery states, the law expressly contemplates and regulates the sale ("assignment") of lottery prize payments, subject to court review and approval. It was the people at Encore who took the leading role in drafting, lobbying for, and winning enactment of those laws in many states. Unfortunately, there are still a handful of states that do not yet allow winners to sell the prize payments. In those "closed" states, winners who need cash have no alternative but to borrow at very high interest rates. Contact us (online or call us toll free at (800) 586-7949) and we'll tell you more. If you wish, we'll even send you (or your lawyer) a copy of the applicable law in your state and a copy of our standard form agreement for review.

Q. Will the law in my state ever change so that I can sell my payments?
A. Winners in Arizona, California, Colorado, Connecticut, Florida, Illinois, Kentucky Maine, Maryland, Massachusetts, Michigan, Montana, New Hampshire, New Jersey, New York, Ohio, Oregon, Pennsylvania, Texas, Vermont, Virginia, Washington, Washington, D.C., West Virginia, and Wisconsin already have the right to sell their prizes. A handful of other states still bar winners from selling (or even pledging) their payment rights. If you are a winner in a state that does not yet allow winners to sell their payments, give us a call (toll free) at (800) 586-7949 (or contact us [online]). We can put you in touch with your lawmakers. If you would prefer to keep a low profile, we will maintain your privacy and simply provide you with a confidential update regarding the status of our efforts in your state. Working together, we can change the law in your state‚ just as we’ve done in over a dozen other states.

Q. Will a direct funder deal directly with winners or do they all work exclusively through brokers?
A. There are a handful of direct funders (primarily large life insurance companies) who will buy state lottery prize cash flows as an investment, like a long term "fixed income" bond. Generally, those insurance companies buy from and through brokers and will not deal directly with consumers. Encore Funding buys lottery prizes from cash flow brokers, but Encore also deals directly with lottery winners themselves. Thus, when a winner funds with Encore, they can go directly to the funding source— without the broker's markup

Q. How can I be sure that a funding company will pay me the money they've promised?
A. Check with your state lottery and confirm that there have been no complaints lodged against the funder. Demand that the funder make a substantial deposit or down-payment -- a deposit that will be forfeit if the funder fails to pay as and when promised. Insist upon professional and bank references along with a list of satisfied customers. A reputable funder should be willing to deposit a substantial downpayment, will be able to point to a portfolio of successfully funded transactions, and should be able to provide letters of reference from their bankers and auditors

Q. Money is money. Why should I care about credentials and experience?
A. Every lottery transaction requires a court's approval and the state lottery's cooperation. Seeking and obtaining court approval is neither simple nor routine. Every jurisdiction has its own peculiar requirements and every transaction has its own special twists. Not every lottery transaction presented in court gets approved. Some companies have had a dismal record in getting deals approved. Fortunately, as of this writing (9/3/03), the people at Encore still enjoy a 100% success rate. Good luck? Maybe. But experience, careful planning, and detailed industry knowledge can't hurt.

Q. Probate lawyers will ask, "when a lottery winner dies, is the prize subject to estate taxes?"
A. If a lottery winner dies, the remaining prize payments are valued at the winners time of death for estate tax purposes. If the estate in probate (and/or the prize) is large, the IRS will impose an immediate estate tax based on the then present value of the remaining payments due. In many cases, the estate tax due could far exceed the amount of an annual prize payment. Lottery Winners' estates, heirs, and probate lawyers have been battling with the IRS over how to value the remaining payments due for estate tax purposes. A very recent United States Court of Appeals decision held that for estate tax purposes, lottery prize cash flows should NOT be valued using the IRS "annuity" valuation tables, but instead, can and should be valued based on the prices offered by companies like Encore. See Estate of Gribauskas v Commissioner (2nd Cir. 2003). There is, however, a conflict among different courts on this issue. See for example Estate of Donovan v Commissioner (USDC Ma, 2005) (valuation of lottery prize for estate tax purposes based on IRS "annuity tables", not "market value"). See also Valuation of Lottery Prize Payments for Estate Tax
Purposes
. In all events, to create cash liquidity for the payment of estate taxes, Encore has purchased many tens of millions of dollars worth of lottery prize payments in probate sales and/or from lottery winner's heirs.

Q. Tax professionals may ask, is the money received when a winner "cashes in" their future lottery prize payments taxable as ordinary income, or as a capital gain?

A. Money received from the sale of lottery prize payments is taxable in the year actually received. If a winner accepts payment over time, federal (and in some states, state) income tax will be due each year when the payments are received. If a winner cashes in some or all of their future payments, the winner will owe federal (and in some instances, state) income taxes on the lump sum for the tax year when the lump sum is paid and received.
Many lottery winner have taken the position that the right to receive prize payments is a capital asset and that the proceeds of a sale of that asset ought to be taxed as a long term capital gain. Not surprisingly, the IRS disagrees and has successfully litigated the issue. See USA v Maginnis (9th Cir., 2004), Prebola v Commissioner (United States Tax Court, 2005), Laterra v Commissioner (3rd Cir., 2006), and Watkins v Commissioner (10th Cir., 2006). In light of this recent string of appellate decisions, prudent tax professional will likely advise lottery winners to plan on paying taxes on their prize payments at "ordinary income" rates—whether the payments are received in installments, over time, or in a lump sum.


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Important News for Lottery Winners
Click your state name to learn more

Georgia Bill Passed by Legislature: Would Allow Winners to Choose Cash

New State Laws Let Massachusetts, Maryland, and Kentucky Winners Choose Cash

New Law Allows Ohio Winners to Sell All or Only a Part of Their Prize.

Attn Massachusetts Winners: Read about Encore in the Boston Globe. Click here learn about the Massachusetts state law.

Virginia Winners can now get upfront cash.

Illinois Winners can now sell all or just some of their future payments..


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