Imagine you just won the Lottery. Would you quit your job in spectacular fashion? Plan a lavish vacation? Build homes for the homeless? Start the business you have always dreamed of? Anything is possible if you are the extremely lucky winner of the estimated $1.6 Billion up for grabs in the latest Florida Mega Millions jackpot.
Hitting the jackpot comes with its own set of problems that many do not anticipate. “With great wealth comes great responsibility,” said certified financial planner Jim Shagawat, president of Windfall Wealth Advisors in Paramus, New Jersey. For example, family members who you never knew existed, may appear in your life. Predatory scammers try to entice you to “invest” in their products. Sudden wealth can also disrupt or destroy current relationships. Roughly 1/3 of lottery winners end up filing for bankruptcy. Before you rush to claim your prize, consider these tips on wealth management:
Keep a Low Profile
As tempting as it is to share the big news, the safest route is to remain anonymous. This will protect you from excessive advertising and unwanted contact with third parties. The rules regarding anonymity are different in each state. Shielding your identity when you win the lottery is only allowed in six states: Kansas, Delaware, North Dakota, Maryland, South Carolina and Ohio. Some states will require you to make your name public, go to a press conference, or attend interviews. If so, be sure to set up a new P.O. Box and change your phone number to avoid being overwhelmed with marketing requests.
Secure your Ticket
Think of the scene in the movie Willy Wonka and the Chocolate Factory when a friendly neighbor, amidst the chaos tells Charlie to “run straight home and don’t stop until you get there”. In real life it is also important to sign the winning lottery ticket. A lottery ticket is considered a bearer instrument. This means that whoever signs the ticket may claim the lottery winnings. Therefore, if you lose an unsigned winning ticket, whoever finds it can lawfully claim the prize.
Assemble a Team of Professionals
Acquiring major wealth comes with major responsibility. Trying to figure out how to invest, manage, save, protect and allocate millions of dollars can be a daunting task. You should line up a team of professionals that includes an estate planning attorney, a tax attorney, financial advisor and an accountant. Ensure that all your advisors work in concert to manage your taxes, investments, estate planning and insurance, among other crucial aspects of wealth management. Often the best way to find these professionals is to ask around in your local community for recommendations of professionals that people have already worked with.
Make a Choice Between Lump Sum or Annuity
When you win the lottery, you can receive a one-time, lump-sum cash payment, or you can receive annuity payments over the next 3 decades. When you take a lump-sum payment, it’s typically a lower amount than the reported jackpot.
Which payout option is better?
With a lump-sum payment, you can invest the proceeds now and earn a financial return. On the other hand, the annuity option spreads your winnings over 30 years, which can help limit any potential reckless spending. You should compare the after-tax proceeds and your intended investment return of each option. Taking the lump-sum is generally deemed the better financial option, but it is important to take into account spending habits and family obligations. In some cases, receiving the annuity may work better for your lifestyle.
Asset Protection and Estate Planning
After acquiring your wealth, whether through winning the lottery, or any other means, learning how to legally protect your money is the next crucial step. An attorney who understands finance can help navigate the various legal methods to accomplish your goals. The following are just a few of the tools an experienced estate planning attorney can use to safeguard your assets:
- Revocable Trusts – transferring assets, especially real estate, to a revocable trust is one of the most efficient ways of passing an inheritance to your loved ones
- Irrevocable Trusts – transferring assets to irrevocable trusts to reduce estate taxes and provide creditor protection
- Limited Liability Companies – to safeguard real estate and similar investments by limiting your exposure to potential lawsuits
- Irrevocable Life Insurance Trusts – to invest in and hold cash-value life insurance and other types of insurance
Contact OC Estate and Elder Law at (954) 251-0332 or email@example.com to speak with experienced estate planning attorneys who can analyze your particular set of circumstances to protect your wealth.