Billie Bob Harrell Jr.
A Home Depot shelf-stocker won $31 million on Lotto Texas in 1997 and took it as 25 annual payments of about $1.24 million. Less than two years later he signed away ten years of those payments — worth over $6 million gross — for $2.25 million in cash. Twenty months after the win he was dead, and the cash was gone.
Billie Bob Harrell Jr. was stocking shelves at a Home Depot in northeast Harris County when, on June 28, 1997, a Quick Pick ticket bought at a Texaco Star Mart in Kingwood won the $31 million Lotto Texas jackpot.
He and his wife did the thing every financial adviser tells lottery winners to do: they took the annuity. Twenty-five annual instalments of roughly $1.24 million. Their attorney, Karen Gerstner, set up a trust to receive the payments.
On paper this is the responsible version of the story. A trust. An annuity. A lawyer. It is worth understanding precisely how it still went wrong, because the failure was not in the structure — it was in what the structure could not stop.
Six houses, 480 turkeys, and a number nobody could say no to
Harrell tithed 10% of the first cheque to his church. One Christmas he paid for 480 turkey dinners for families in need. He bought a ranch, six houses for family members, cars, and gifts.
That is roughly the whole first year's payment, and it was not the last year's requests. The structural problem with an annuity is that people around a winner do not experience it as $1.24 million a year. They experience it as $31 million, and they calibrate their asks accordingly.
In February 1998, eight months after the win, his wife filed for divorce. The trust was divided into two equal halves — one for each of them. The single income stream that was supposed to carry twenty-five years of decisions was now two smaller income streams carrying two households.
Selling the future to pay for the present
In 1999, Harrell entered into a transaction with Stone Street Capital, a Maryland firm that buys lottery payment streams. He received $2.25 million in cash. In exchange he gave up ten years of future lottery payments, with a gross value reported at over $6 million.
Gerstner, his own attorney, told the Houston Press she had serious concerns about the deal, and stated her view that Texas law did not permit a winner to assign a payment stream in that way. The reporting describes the transaction as having been routed through a third-party entity. The Texas Lottery Commission said it had received no complaint about it.
Whatever the legal characterisation, the economics are not in dispute. Discounting $6 million of payments to $2.25 million is a very large haircut, and haircuts of that size are the market's price for two things: risk, and a seller who needs the money now.
Billie Bob Harrell Jr. died by suicide at his Kingwood home on May 22, 1999 — twenty months after the win, at 49.
A tax bill on money that was no longer there
This is the part that belongs in a probate archive, and it is the part almost nobody reads about.
When a lottery winner dies partway through an annuity, the remaining payments are an asset of the estate. They are valued for estate tax purposes at their present value on the date of death — a real, taxable, often seven-figure number. And they arrive as payments, once a year, for years.
So the estate owes a tax computed on a lump-sum valuation, payable on a fixed deadline, on an asset that pays out slowly. That is the classic illiquidity trap: the taxable value and the available cash are not the same thing and do not arrive at the same time.
Harrell's estate had a further problem. Ten years of those payments had already been sold, and the $2.25 million received for them had largely been spent or dispersed. His children hired attorney Norman Riedmueller to look for it. He told the Houston Press there was supposed to be money in the estate and there was nothing there.
The children were left with an estate tax exposure on the remaining payments and no cash with which to pay it — which is exactly the outcome the annuity was supposed to prevent.
- The remaining annuity is an estate asset. Its date-of-death present value goes on the estate tax return.
- It is also income in respect of a decedent. Each payment is taxable income to whoever receives it under IRC §691 — taxed twice in effect, with an offsetting §691(c) deduction for the estate tax attributable to it.
- Assignment converts a future problem into a present one. Selling ten years of payments for cash accelerates income, destroys the liquidity that was supposed to fund the tax, and does it at a discount.
- A divorce splits the stream. Half an annuity does not support half the obligations, because the obligations were sized to the headline.
Timeline
- Jun 28, 1997A Quick Pick ticket bought at a Texaco Star Mart in Kingwood wins the $31 million Lotto Texas jackpot. Harrell is a Home Depot shelf-stocker in northeast Harris County.
- 1997The Harrells elect 25 annual instalments of roughly $1.24 million rather than a lump sum. Attorney Karen Gerstner establishes a trust to receive the payments.
- 1997–1998He tithes 10% of the first cheque, funds 480 turkey dinners at Christmas, and buys a ranch, six houses for family members, and vehicles.
- Feb 1998His wife files for divorce. The trust is divided into two equal halves.
- 1999Harrell assigns ten years of future lottery payments — a gross value reported at over $6 million — to Stone Street Capital for $2.25 million in cash. His own attorney states she had serious concerns about the transaction.
- May 22, 1999Billie Bob Harrell Jr. dies by suicide at his Kingwood home, twenty months after the win, at 49.
- After 1999His children retain attorney Norman Riedmueller to trace the $2.25 million. He reports finding nothing in the estate.
- 2000sThe estate faces tax on the present value of the remaining annuity payments without the liquidity to pay it.
What actually went wrong
- The annuity was treated as a budget by one person and as a fortune by everyone else. $1.24 million a year cannot fund expectations built on a $31 million headline, and no trust document can make a family calibrate to the smaller number.
- A gatekeeper was hired but not empowered. There was a lawyer and there was a trust. What there was not was a rule — an independent trustee with sole discretion over distributions, or a written giving policy — that made refusal automatic rather than personal.
- Ten years of payments sold at roughly a 63% discount. Whatever pressure produced that trade, no advice process that included independent counsel and an independent financial opinion on the discount rate would have let it close on those terms.
- Divorce split the only income stream. Halving a 25-year annuity halves the resources without halving the commitments already made to family, church, and lenders.
- No liquidity plan for the estate tax. The one thing an annuity guarantees at death is a valuation problem. Life insurance in an irrevocable trust — the standard, boring answer — would have paid the tax without touching the payment stream.
Would it have gone that way in Florida?
Florida allows the assignment — but only through a judge, with independent counsel, an independent financial opinion, and a capped discount rate. That deal would have had to survive a hearing.
Florida runs its lottery under chapter 24 of the Florida Statutes, and chapter 24 answers this case directly.
The default is non-assignability. Fla. Stat. §24.115 provides that the right of any person to a prize other than a prize payable in instalments is not assignable. A prize that is payable in instalments over time is assignable — but only pursuant to an appropriate court order under §24.1153.
§24.1153 is the safeguard, and it is a serious one. A court in the winner's judicial circuit (or where the department is headquartered) may approve an assignment only on findings that: the assignment is in writing, executed by the assignor, and governed by Florida law; the purchase price represents the present value of the payments assigned, discounted at an annual rate not exceeding the state usury limit; and the assignor has sworn an affidavit attesting that they are of sound mind and not under duress, that they received independent legal counsel unrelated to and not compensated by the assignee, that they received independent financial and tax advice from an unrelated professional, that they understand they will not receive the assigned payments, and that they received a one-page disclosure in bold 14-point type stating the payments, the dates, the purchase price, the discount rate, and every fee — plus written notice of a three-business-day right to cancel. The department's counsel must get at least 10 days' notice of the hearing. Payments subject to a child support offset or a debt to a state agency cannot be assigned; those obligations come off the top.
Read that list against a transaction that turned $6 million into $2.25 million, and the value of a judge is obvious. A Florida court would have had to make an express finding on the discount rate, on the record, with the department on notice, after the winner had received advice from a lawyer and a financial professional who were not paid by the buyer.
At death, §24.115 also settles who gets the rest: a prize, to the extent not assigned or encumbered under §24.1153, may be paid to the estate of a deceased prize winner, or to a person designated by an appropriate court order. So the remaining instalments become an estate asset, administered by the personal representative, distributed under the will or by intestacy.
Then the tax, which is where Florida is genuinely kinder. There is no Florida estate tax — Fla. Const. Art. VII, §5 forbids one beyond the amount of any federal credit. The federal estate tax still applies to the date-of-death present value of the remaining payments, and each instalment is income in respect of a decedent under IRC §691, taxable to whoever receives it, with a §691(c) deduction for the estate tax attributable to it. Fla. Stat. §733.817 apportions the estate tax among the recipients of the taxable estate unless the will directs otherwise — which matters enormously here, because the beneficiary receiving a slow annuity and the beneficiary receiving cash should not bear that tax the same way.
The practical instruction: if you hold or will inherit a payment stream, buy the liquidity before you need it. Life insurance owned by an irrevocable trust, sized to the projected estate tax, is the standard answer and costs a fraction of a 63% discount. And put an express tax-apportionment clause in the will, so the person receiving twenty years of instalments is not the one handed the entire tax bill in year one.
What people ask us about this.
Further reading
Third-party sites. Not ours, not endorsed, not kept current by us — just the places worth going next.
Sources
- Billie Bob's (Mis)Fortune — Houston Press
- Biggest lottery losers: Billie Bob Harrell Jr. — Lotto Analyst
- Tragic downfall of the $31 million lotto winner — The Mirror US
- Fla. Stat. §24.115 — Payment of prizes — The Florida Senate
- Fla. Stat. §24.1153 — Assignment of prizes payable in installments — The Florida Senate
- Fla. Stat. §733.817 — Apportionment of estate taxes — The Florida Senate
- Texas Lottery — Lotto Texas — Texas Lottery Commission
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