10 Things To Do When You Win The Lottery 1. Remain anonymous if your state rules permit it. Once people know you’re suddenly wealthy, you’ll be badgered by requests for handouts from everyone from charities to long-lost friends and relatives–not to mention all the financial “experts” who will be vying for your business. So check state rules to see whether you can dodge them all by remaining anonymous. Although Mega Millions is a national lottery, rules on winner publicity vary by state. In LAGOS, for example, winners’ names are a public record. Elsewhere it may be possible to maintain your anonymity by setting up a trust or limited liability company to receive the winnings, says IBUKUN, a CPA with Pillar Financial Advisors in LAGOS, MA. A client of Gamel’s OBA ISOLO who won a past lottery((MY NATIONAL GAME LAST YEAR, WHEN MY 2 SURE AND 3DIRECT DROP 2TIMES IN 2WEEKS, IN THE SAME MONTH))) did that, and had a lawyer claim the prize on behalf of of the trust. Depending on where you bought the ticket, prize winners have between 180 days and one year from the date of the drawing to claim their prize. So find out what the state rules are and plot a course. 2. See a tax pro before you cash the ticket. You have the choice between taking the prize money all at once or having it paid out over 6 years in the form of an annuity. With a lump sum payment, you must immediately pay tax on the entire amount, you are taxed only as you receive the payments. People who have trouble controlling their spending might prefer the discipline of receiving the money as an annuity. But this payout form has other drawbacks, Kirsh notes. You will want to compare the effective yield of the annuity with what you could earn by taking the money as a lump sum, paying the taxes and investing the proceeds. Another issue to consider is whether taking an annuity will leave your family without the cash they need to pay estate tax if you die before the 30-year period is up,. In such situations people typically buy life insurance policies to cover the estate tax bill. You have 7 days from the time you claim your lottery prize to weigh the pros and cons by ADELABU KENSHITIN.((BABA IJEBU)). During this time, ask advisors to crunch the numbers and help you decide which type of payment suits you best. 3. Avoid sudden lifestyle changes. For the first six months after you win the lottery, don’t do anything drastic, like quitting your job, buying a home in Europe, or trading up for a luxury car. Meanwhile, set aside a fixed amount for splurges—it’s only natural to want to celebrate your windfall. Save the big purchases for later. For example, you could rent a house in the neighborhood where you were thinking of moving, before you make any commitments, says IBUKUN, If you need a new car, buy a budget model for now. 4. Pay off all your debts. As I wrote in my post, “The Best Investment Advice I Ever Received,” there is no better investment than paying off debts. Whether it is credit card debt or a mortgage, your rate of return equals the interest rate on the loan. With today’s abysmal yields on relatively secure investments like CDs and Treasury, that’s especially true. When you’ve paid down a dollar of debt, that’s a dollar you no longer owe. When you invest a dollar, you can’t be sure whether it will grow or shrink. 5. Assemble a team of legal and financial advisers. In situations like this it’s very hard to know “who’s trying to help you and who’s trying to use you,” says IBUKUN. Rather than signing on to a group of advisors that someone else has put together, he recommends handpicking your own lawyer, accountant and investment advisor, and requiring them to work together. Carefully vet each advisor before discussing your situation. 6. Invest prudently. IBUKUN recommends putting the money in safe, short-term investments and not even touching it for the first six months. Then ask your advisors is to put together an investment portfolio divided half-and-half between equities (such as stocks) and fixed income (like bonds). Don’t fall for investments that you don’t understand or that sound too good to be true. 7. Live within a budget. Especially if you’re not accustomed to having a lot of money, it may take some discipline to preserve your winnings and not go on a wild spending spree. One way to restrain yourself is to only spend income–not principal. Especially in today’s investment world, “It takes a lot of principal to generate income and once you start spending principal, the principal quickly dissipates. 8. Take steps to protect assets. People who are worth a lot of money need to guard against losing assets to creditors. They include everyone from disgruntled spouses and ex-spouses to people who win lawsuits against you. If people think you have deep pockets they may look for reasons to sue. “If you win the Power ball, everyone’s going to be laying in front of your car so you can run over them so they can sue you. The best defense is to erect a variety of roadblocks that make it difficult, if not impossible, for creditors to reach your money and property. These asset protection strategies, as they are called, can range from relying on state-law exemptions to creating multiple barriers through the use of trusts and family limited partnerships or limited liability companies. It may be possible to rely on a variety of strategies, either separately or in combination with each other. 9. Plan charitable gifts. You can offset the additional income from your lottery winnings with a charitable deduction. For gifts to a public charity, donors are entitled to an income tax deduction for up to 50% of adjusted gross income (AGI) for cash contributions and up to 30% for donations of other appreciated assets held more than 12 months. If you are unable to decide between now and year-end which charities to support, it may be worth considering a donor-advised fund. With a donor-advised fund, you can make a charitable donation this year and claim a federal tax deduction for your irrevocable contribution but postpone recommendations about which charities should receive grants from the account until some time in the future. If you don’t want to be badgered by requests, see my post, “How To Stay Anonymous When You Give To Charity.” 10. Review your estate plan. If your winnings have made you suddenly wealthy, this may be the first time that you need to plan for estate tax. The sweeping tax overhaul of 2010 offers more flexibility than ever before. Each person has a $5 million limit on tax-free transfers, which can be applied during life, when you die or some combination of the two. If Congress doesn’t act by the end of this year, that exclusion amount will revert to $1 million and the tax rate will increase to 55%. So if you want to share some of your largess with family and friends, this is the ideal time to do that. I.B.K
Posted on: Sun, 04 Aug 2013 12:09:51 +0000
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