It is a situation that many dream about, but few experience—the world of winning the lottery. But if it happens, here is a five-step action plan to protect instant wealth.
In California, the chances of winning a Powerball ticket of at least $100,000 is about 1 in 12 million. Of that number, a majority of winners might end up bankrupt. There are many factors as to why someone who receives a significant financial windfall would lose it all. One factor is the lack of preparation and planning.
During your career, you may have to advise a friend, family member or client who wins the lottery. For most, it is a completely foreign process. If the wrong steps are taken, it can result in loss of money, loss of privacy and can feel like a burdensome rather than beneficial process. Fortunately, our office has assisted individuals who have won the lottery in payouts exceeding eight figures. Based on insights and strategies that we developed, we describe a five-step action plan on how to speak to your client and help navigate the complexities of instant wealth.
Keep It Under Wraps
When you win the lottery, your best friend is discretion. There are too many cautionary tales of people who end up physically hurt or killed for their luck. Take Jack Whittaker for example, a West Virginia contractor who was drugged and robbed of $545,000 outside of a strip club. Similarly, Craigory Birch Jr. was shot and killed in his home two months after winning. The very first thing a lotto winner should do is to not to share the news immediately. This is not the time to post on social media about your good fortune. If you publicize a win, you can attract unwanted attention. As mentioned above, such attention can bring danger to you and your family. While people in your immediate family need to know, that is the extent of the announcement we recommend.
Additionally, you should never feel obligated to speak to the press. There is no requirement to have a press conference when you win. There is also no requirement to pose for a picture with you and an oversized check that shows your name and the amount of your winnings. You should keep in mind that there is not an urgency to announce or claim your winnings. In California, you now have at least 180 days before you have to submit a claim. For some drawings such as the Powerball, the actual time limit can be up to one year.
Lockdown that Ticket!
In order to claim your winnings, you need to have your original ticket. If you do not, your claim will likely be invalid. The ticket serves as part of the proof that you won. Without it, ownership is in question. So, you need to take steps to secure and safeguard the original ticket. You need to make sure that you place the ticket in a place that is secure from theft such as a safe deposit box or a home safe. You should also consider making copies of the ticket. Additionally, in some instances, it may make sense to sign the ticket with your contact information and signature to further protect it.
When you have a plan that accounts for what to do before, during and after, you can feel confident you are doing the utmost to protect what you won.
Assemble Your Team
The influx of money from a lottery win can create a lot of issues. Some of these issues have already been discussed such as privacy and safety. Winning the lottery can also complicate the winner’s financial situation and expose them to new risks. How do you reduce any tax liability? How do you protect yourself from legal claims? How do you resolve pre-existing debt? How do you create a legacy of gifts to family and charity?
To navigate these questions, it is important to put together a team of professionals who will help you through this new wealth. These professionals will include attorneys, accountants, insurance and financial professionals, among others. Attorneys can help with structuring legal entities, resolving debt, estate planning and overall strategy. Tax professionals can assist in identifying and establishing methods and plans to minimize tax liability. Insurance professionals can help not only in risk management, but providing funding sources for taxes and gifting. Your financial professionals will assist in the planning for this newfound wealth as well as setting up the accounts needed to hold this money.
Plan Before You Go
After assembling your team, you need to get with your team to create a plan. This plan is not only focused on how to claim the winnings, but on what to do with the money once you receive it. In our work with a lotto winner, we craft a comprehensive plan that outlines the steps that need to be taken to not only receive the winnings, but what to do with them once received.
For one of our clients, we outlined the itinerary for the day that they were going to make their claim. We structured the day from the time we left the winner’s home to travel to the lottery office to the time he completed his deposits at the bank. For many, the goal is to stay as anonymous as possible. In states that allow anonymity, creating a “blind trust” or some other similar vehicle can help with that. In other states, like California, it is important to make sure a lottery win does not attract a lot of attention. For one client, we did a “surprise” visit to a lottery division office to submit claim documents. This visit, which was unscheduled, allowed my client to submit the proper paperwork without any media around.
Despite what someone might say, a media conference is not needed to collect your winnings. When you have a plan that accounts for what to do before, during and after, you can feel confident you are doing the utmost to protect what you won.
Execute Your Plan
Execution is key. Not only is it important to have a plan, but it is even more important to implement the plan crafted by your team of professionals. As already discussed, you put together a team to help with strategy and tactics to minimize taxes, protect from personal liability, maintain/limit privacy and to leave a legacy. Whether it involves real estate holdings, establishing trusts, or other strategies, executing the plan ensures that the generational wealth created by the lottery win is protected and sustained.
Winning the lottery can be life changing. If that does happen to you or someone you care about, make sure you encourage them to be proactive in their approach to receiving their winnings. Preparation will be your friend as you enter into your “Lotto era.”
