You’ve Won The Lottery, What’s Next?

//You’ve Won The Lottery, What’s Next?

You’ve Won The Lottery, What’s Next?

money

When someone wins a major lottery prize in North Carolina, life is about to change dramatically and not always for the better. While a windfall of millions is a dream many have, there are some pretty extreme steps people have to take to maintain even a minor semblance of an ordinary life. And if you think having tens or hundreds of millions of dollars means you never have to think about money again, you would be wrong—just the opposite is true. Here are some steps major lottery winners should take with a particular eye towards financial and estate planning:

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  • Disappear: I don’t mean that literally, and I don’t mean “go off the grid.” What I mean is it is time to limit all publicly accessible information, change your phone numbers, and move. While a second-hand story, a client of a colleague of mine had to move to a gated community simply to stop people from knocking on his door twenty or more times a day asking for donations. The only way he had to stop them was to move into a neighborhood where security was empowered to turn people away.

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  • Seek out Financial Help Before Giving ANYTHING Away: This is where many lottery winners lose a good portion of their newfound wealth. Whether it is charities, relatives, or friends, there is often an impulse to be generous. While generosity and charitable intentions are good, it should not be done at the expense of your future well-being and that of your loved ones. Planning with a good financial advisor with access to many different investments can help plot out a long-term financial plan that can incorporate giving to relatives, friends, and charities in a way that will not bankrupt you in a few years.
  • Plan to Effectively Place Some Assets Into an Irrevocable Trust: Probably the worst enemy of lottery winners are the quickly learned spending habits of the lottery winners. You hear the stories all of the time of people winning tens or hundreds of millions of dollars, and then all of the money is spent in a few years. If certain investments, real estate, or other assets are transferred into an irrevocable trust and placed in the hands of a trust company, then only the income automatically comes out with the principal being preserved except in the case of extreme emergencies. For the Rocky franchise fans who actually watched Rocky V, Rocky Balboa and his family lost everything to an embezzling accountant, but the old gym was left in trust to Rocky’s son by Rocky’s trainer Mick when he died, so the accountant couldn’t touch it. In the same way, a person can create a trust for their own benefit that will preserve a good part of the new wealth from their own potential spending.

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  • Redo Your Own Estate Plan with an Eye Towards Taxes: Most of my clients laugh when I mention that the federal estate tax kicks in at just over $5 million a person, but that tax begins at 45%. For a lottery winner, suddenly this is much more of an issue. There are other kinds of irrevocable trusts that can be used to receive assets over time and exponentially generate estate tax-free wealth upon death through the use of life insurance as a trust asset. This means that the estate-tax-free money can be used to pay off the estate taxes from the other assets without a loss to those other assets.

 

  • Redo Your Own Estate Plan with an Eye Towards Beneficiary Responsibility. Even if you are able to beat the odds and not go into a spending freefall like many lottery winners do, your heirs may not be as fortunate. Setting up specific generational trusts to keep children and other beneficiaries from spending the large inheritance you are leaving behind can make sure that your descendants lead a comfortable but not wasteful or extravagant lifestyle.

 

Now that you are well-armed with good information, you’ll be able to correctly protect those millions and millions of dollars you will no doubt win the next time you play the lottery. In fact, you will do so well that you can afford to take your attorney to dinner.

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By | 2017-05-20T16:43:28+00:00 May 20th, 2014|Company News|0 Comments

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