Friday, July 12, 1996

Lotto heirs suffer big tax bites

By Associated Press

AUSTIN (AP) - The heirs of two Lotto Texas winners who died after hitting big jackpots, one in Colorado City, are pleading with the Texas Lottery Commission for help after receiving big inheritance tax bills.

The problem is that the winnings are paid over 20 years, but the Internal Revenue Service wants its cut of the entire jackpot now.

"The estate, for all practical purposes, could be completely bankrupted by the tax obligation," said Kenneth Walker of Dallas, lawyer for the estate of Johnny Ray Brewster.

Another case involved the late Porter Richardson of Colorado City, who won $4.3 million in 1995 and, three months later, became the first Lotto Texas winner to die. Richardson, a radio station engineer, was 80.

His son, Richard Richardson, a Fort Worth aircraft engineer, asked the commission to help him beat the federal tax man.

"Just the accountant's fees are going to chew up a big part of it," he said.

Porter Richardson collected $217,513.84 a few days after the March 18, 1995, drawing. He died three months later, but not before buying a new, white Chevy Camaro and hiring someone to pick the sticker grass out of his yard - the two things he said he wanted most from his money.

Brewster, a Dallas pharmacist, won $12.8 million in May 1995. He died of a heart attack 10 months later at age 49, leaving sister and lone beneficiary Penny Griffin of Dallas to scramble to cover a $3.5 million estate tax bite.

Under state law, the lotto payments will be sent to Brewster's estate in annual installments of $463,320 after 28 percent is withheld for federal income tax. So far, two payments have been made.

By the end of the year, Mrs. Griffin must come up with the $3.5 million in taxes or reach a payment agreement with the IRS.

Walker said the IRS could approve a 10-year payout plan on the taxes. But that would require the estate to pay at least $482,000 a year, $18,680 more than the annual lotto payment. That payout plan includes the tax debt and interest but not penalties that could be tacked on.

"What's at stake is the difference to the estate of either walking away with what the prize winner intended: that his winnings go to his sister ... or the sole heir of Mr. Brewster's estate will be the taxing authority."

The commission refused Walker's request that it assign checks to a lender who could help Griffin finance the tax debt. The commission has ruled previously, in requests from living winners, that lottery winnings can be paid only to the winner or the winner's estate.

However, Commission Chairwoman Harriet Miers said the panel would look at how other states handle these situations.

"We do have an interest in seeing the value of the prize is not sucked out," she said.
Also, it assured Walker and his clients that it would not interfere with any arrangement the estate works out with a lender.

As for the Richardson case, the commission refused the heirs' request that it make annual payments to a third party - him and his brother - instead of the estate.

Kim Kiplin, the agency's general counsel, said what Richardson wanted would open the door for assigning prizes to anyone other than the winning ticket holder, exposing the commission to liability.

Sending checks to the estate of a deceased winner, she said, keeps the commission out of will disputes.

Zoann Atwood, the lottery's deputy executive director, said the Brewster family's dilemma shows why lottery winners should consult financial experts before accepting their prizes.
In some cases, setting up a foundation or other legal entity to accept the prize money could save tax money in the long run, Atwood said.