Estate planning for lottery winners

What the 2026 estate tax rules mean for lottery winners

The One Big Beautiful Bill Act (OBBBA), signed July 2025, permanently raised the federal estate and gift tax exemption to $15,000,000 per individual and $30,000,000 for married couples (with portability elected).¹ Unlike the TCJA sunset that had been scheduled for the end of 2025, this $15M level is now a permanent feature of the tax code — it will not disappear, and it is indexed for inflation starting in 2027.

For most lottery winners, the practical effect is:

State estate taxes add a second layer. Several states impose their own estate tax with lower exemptions — Washington ($2.193M), Oregon ($1M), Massachusetts ($2M), and Illinois ($4M) are the most common traps for lottery winners who assume only the federal rules apply.² If you live in one of these states or own property there, the state exposure needs to be modeled separately.

Pre-claim: should you claim through a trust?

The single most time-sensitive estate planning decision for a lottery winner happens before the prize is claimed, not after. Several states allow winners to claim a prize through a revocable living trust, a blind trust, or an LLC — keeping the winner's name out of public lottery records while simultaneously establishing a trust structure for the prize proceeds.

Why this matters for estate planning:

• Probate avoidance. Assets that flow into a revocable living trust bypass the probate process at death. A prize claimed directly in the winner's name goes into the probate estate. On a $10M+ win, probate can involve court oversight, public filings, delays, and attorney fees that a properly funded trust eliminates.
• Immediate ownership structure. When proceeds land in a trust from day one, the trust agreement governs distribution, successor trustees, and beneficiary terms. A winner who claims personally and later tries to transfer assets to a trust has extra steps and potential gift tax complications.
• Privacy. See the lottery winner privacy guide for a full state-by-state breakdown of which states allow trust or LLC claims and the specific rules that apply.

The window to make this decision is narrow. In most states, once a ticket is signed, the chain of title is established. Assembling the trust documents and the legal team before signing is the correct order of operations.

Five estate documents to update or create immediately

After a large prize, an estate plan that worked for a $500K net worth is no longer adequate. Here are the five documents that need attention:

1. Revocable living trust. The foundational document. Holds titled assets, names successor trustees, specifies distribution terms for beneficiaries, and avoids probate. If you claimed through a trust, you already have this — but review the distribution terms now that the prize is in it.
2. Pour-over will. Works alongside the trust to capture any assets that were not titled in the trust at death, directing them into the trust through probate. Not a substitute for a fully funded trust but an essential backstop.
3. Durable financial power of attorney. Names someone to manage financial affairs if you become incapacitated. Without this, a court guardianship proceeding is required — costly, slow, and public.
4. Healthcare directive and living will. Medical decisions do not wait for estate lawyers. This document specifies your wishes and names a healthcare proxy; it becomes critical within the first year of a windfall when life is still unsettled.
5. Beneficiary designations on all financial accounts. Beneficiary designations on brokerage accounts, bank accounts (POD/TOD), and any retirement accounts override the will entirely. After a large win, these must be reviewed and updated to match the trust-centered estate plan. A mismatch between the trust and a beneficiary designation creates gaps that force probate on specific assets.

Family gifting strategy

Lottery winners face immediate and sustained pressure from family members. Unstructured gifting — writing checks as requests come in — erodes the estate plan, creates taxable gifts, and rarely satisfies the underlying dynamic. A structured gifting policy, agreed on before the first request, is more durable than reactive generosity.

Annual exclusion gifting — $19,000 per recipient in 2026

Each year, you may give up to $19,000 to any single recipient without filing a gift tax return or touching your lifetime exemption.³ Married couples who elect gift-splitting can give $38,000 per recipient per year. A family with four adult children and eight grandchildren can transfer $152,000 per year ($304,000 married) out of the taxable estate with no paperwork beyond annual exclusion gifts.

Lifetime exemption gifts — $15M per person

Gifts above the annual exclusion reduce the lifetime estate and gift tax exemption dollar for dollar. In 2026, that shared exemption is $15M per individual — permanently, under OBBBA.¹ A single winner with a $20M estate could gift $5M today (using $5M of the lifetime exemption), reducing the taxable estate below the $15M threshold and eliminating future estate tax exposure on growth of those assets. Gifts of appreciating assets — made now, while values are lower — remove future growth from the taxable estate as well.

Generation-skipping transfer (GST) exemption

Gifts or bequests that skip a generation — going directly to grandchildren or great-grandchildren — can trigger a separate 40% GST tax. The 2026 GST exemption is also $15M per individual, but unlike the estate tax exemption, it is not portable between spouses.¹ Each spouse must use their own GST exemption independently. For winners planning multi-generational wealth transfer, GST planning must happen explicitly — it does not occur automatically through portability elections.

Charitable giving as an estate and tax planning tool

Charitable giving after a large win serves two distinct purposes: it can reduce the income tax bill in the year of the prize (by generating a deduction against the large taxable payout) and it can reduce the taxable estate going forward. The main vehicles:

Each vehicle has different rules around timing, deduction limits, and control. A fee-only financial advisor working alongside an estate planning attorney and a CPA can model which combination matches the winner's tax situation and charitable intent.

Life insurance in estate planning

When a large estate will owe estate taxes, the bill is due in cash within nine months of death. The estate may need to liquidate investments at potentially disadvantageous times to pay it. Life insurance held inside an irrevocable life insurance trust (ILIT) can provide tax-free liquidity to pay estate taxes without the proceeds being included in the taxable estate. This is a planning technique worth modeling with an estate attorney once the full picture of assets and projected estate tax exposure is clear.

The order of operations

For most lottery winners, estate planning competes with the more immediate pressure of claim deadlines, tax withholding, and family requests. Here is a practical sequence:

1. Before claiming: Consult an estate planning attorney and a sudden-wealth financial advisor. Decide whether to claim through a trust. Prepare the trust documents if so.
2. Week one after claiming: Assemble the advisory team (financial advisor, CPA, estate attorney). Review or create the five core documents. Freeze gifting until the gifting policy is written.
3. Months one through three: Model the estate tax exposure, structure the investment accounts under the trust, review beneficiary designations, and begin structured annual gifting if appropriate. Consider charitable vehicles.
4. Year one and ongoing: Annual gifting program, portfolio tax planning, GST planning for multi-generational gifts, foundation or DAF grantmaking. Revisit the estate plan whenever circumstances change.

See the first-30-days checklist for the parallel sequence of claim, tax, and investment decisions that run alongside estate planning. The investing guide covers portfolio construction and tax reserve planning in detail.

Sources

1. IRS — 2026 Tax Inflation Adjustments Including OBBBA Amendments — estate and gift tax exemption $15,000,000 per individual; GST exemption $15,000,000 per individual (not portable). IRS.gov.
2. Arnold & Porter — OBBBA Estate and Gift Tax Exemption Increases — legal analysis of OBBBA permanent exemption structure and state-level estate tax interaction.
3. IRS — What's New: Estate and Gift Tax — 2026 annual exclusion $19,000 per recipient; non-citizen spouse exclusion $194,000. IRS.gov.
4. IRS Topic 419 — Gambling Winnings — lottery winnings are taxable as ordinary income; federal withholding at 24%, final tax rate up to 37% for large prizes. IRS.gov.

Content is for educational purposes only. Estate tax exemption amounts ($15M) and annual gift exclusion ($19,000) reflect 2026 IRS guidance, including OBBBA (signed July 2025). State estate taxes vary significantly by state — consult a licensed estate planning attorney in your state of domicile. Lottery rules, anonymity statutes, and trust-claim procedures also vary by state.

Get matched with a lottery-winner financial advisor

Estate planning after a large prize involves an estate attorney, a CPA, and a financial advisor working from a shared plan. If you need a fee-only advisor who can coordinate that team — or help you think through trust structure before the claim — we can match you.