Daydreaming about winning the lottery is amazing. In fantasizing, we think about spending our winnings. Considering whether you would buy a castle or travel around the world first become real debates. But if your lottery fantasies do become a reality, you'll need to take care of a few things before you start the spending spree.
With good money management you–and your heirs–could live handsomely for many, many years. But from the moment that you claim that prize, you will be descended upon by vultures who want a hefty helping of those winnings. And if you didn’t have smart money habits up until now, you could easily turn out to be your own worst enemy by quickly squandering the fortune.
Here are some steps to help you steer clear of additional risks. Most of them work well for other windfalls too–for example with sudden wealth that comes from an inheritance or the sale of a business.
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.
You have plenty of time to ponder this strategy—prize winners in all states have one year from the date of the drawing to claim their prize. So find out what the state rules are and plot a course.
Obtain an Unlisted Telephone Number. Until your unlisted number is activated, ask friends, family and your financial advisor to call you on a cell phone. The unlisted number is crucial for several reasons. Most lotteries release the names and locations of winners. This means that you will be bombarded with calls from charities asking for contributions, not to mention long-lost family members looking to "borrow" money.
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 30 years in the form of an annuity. With a lump sum payment, you must immediately pay tax on the entire amount. With an annuity, 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. 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 60 days from the time you claim your lottery prize to weigh the pros and cons. During this time, ask advisors to crunch the numbers and help you decide which type of payment suits you best.
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 McMansion, 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.
Pay off all your debts. 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. 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.
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.
Rather than signing on to a group of advisors that someone else has put together, handpick your own lawyer, accountant and investment advisor, and requiring them to work together.
Your new financial advisor can recommend what steps you should take, such as establishing a trust, before claiming your winnings. Consult with him or her to decide whether to collect the money in a lump sum or installments. Later on, work with your advisor to develop a realistic spending strategy so you don't end up going from glamour to gutter.
Invest prudently.
Live within a budget.
Take steps to protect assets.
Plan charitable gifts.
Have your financial plan in place before you start giving away money. You'll also want your advisor to screen charities to make sure they're legitimate. Having the unlisted telephone number will give you some breathing room to make financial decision thoughtfully, rather than under pressure from aggressive callers. Be sure to use the same approach with your loved ones. Don't make grand promises in the heat of the moment. Instead, wait until you've had time to talk with your advisor and get a sense of your true financial situation.
Review your estate plan.
In my book that will be released soon I talk about "The Star Team" of advisers you should have, winning or not winning the lottery.
The Team Of Advisors will help you to keep your money for many generations and still have a beautiful life.
Contact us if you have any questions. We have been helped thousands of individuals, families and business owners achieving their financial goals and needs.
We work for you!
www.MintcoFinancial.com
anecamara@mintcofinancial.com
Florida: 813-964-7100
New York: 716-565-1300
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