Everyone I talk to lately has lottery pandemonium. As the jackpot soars north of $1 billion, the prospect of someone walking away with the biggest jackpot in the history of the game looms large. As people think and talk about how they would spend the approximate net $600 million prize (come on, you know you have to pay taxes first!), I wanted to share some tips for how to protect yourself if you are lucky enough to be the winner:
1. To Sign The Ticket or Not?
This depends on the state you are in. In New York State, a Trust or legal entity can claim the prize, so we recommend that you consider not signing the ticket before claiming the prize and meeting with your attorney and accountant first. Be aware that the lottery ticket is a bearer instrument, so if you do not sign it and lose it, you are out of luck! It is also a good idea to make extra copies of the ticket's front and back for security purposes.
2. Obtain Tax and Legal Advice Immediately
Before you take another step, you need to meet with an estate planning attorney and CPA who have experience dealing with wealthy clients and asset protection. In some states, you can form a trust or an LLC to claim the prize and thus remain anonymous and out of the spotlight when redeeming your winnings. This is a gray area in New York State, but can be accomplished through the use of a qualified estate planning attorney. You will want to use the CPA and attorney to design the best possible plan for redemption and figure out how much needs to be set aside immediately to cover tax obligations on the winnings.
3. Financial Advisor for High Net-Worth Individuals
The next step before you spend a nickel of the winnings is to use the attorney and CPA to identify a money manager and financial advisor to help you invest the winnings. Even modest investments of the entire winning amount should yield you multi-million dollar annual income, so you will want to be smart and make sure you invest with someone who is trustworthy, has a reputation for handling high net-worth clients and whose fees are comparable to other advisors in the community.
4. Unlisted Contact Information
Especially if you live in a state like New York where you cannot remain totally anonymous when claiming the winning prize, it is imperative to immediately make your telephone number unlisted, re-title your house so your personal address does not come up in a public records search, and heighten the privacy levels of your social media contact information.
5. Establish a Budget
Although they say 40% of lottery winners are broke within 5 years of claiming their prize, this does not hold true for most Powerball winners. Most of the winners who spend all of their winnings have claimed prizes less than $1,000,000. It will take a concerted effort on the part of a sole winner to spend the $700 million in one lifetime. However, to create generational wealth and live comfortably, you should set an annual spending budget (after up-front spending is complete) close to your estimated annual income from investments. This is a safe way to pass along wealth to the next generation that will begin to transform your family into a wealthy American dynasty.
Here's hoping you have the lucky ticket when the last ball drops!