If you win it, you won’t ever have to worry about money again. The jackpot for tomorrow’s Powerball drawing has hit a staggering $1.5 billion.
Wrong.
“Criminals And Counterfeiters Hurry Into Where Wealthy Individuals Are Afraid To Venture.” (Take note of my message, you could easily become your own greatest adversary by rapidly wasting the wealth. And if you haven’t practiced responsible financial habits thus far, you will be targeted by opportunists who desire a substantial portion of those earnings. With effective financial planning, both you and your descendants could enjoy a prosperous lifestyle for numerous years.)
If you accidentally leave it on the counter, show it to a friend in a bar or while waiting for a bus, or if it blows out of your hand, you can claim the prize by presenting a photo ID and the ticket to whoever signs it, meaning that the lottery ticket is a valid instrument. Carolyn Hapeman, a spokesperson for the New York Lottery, says that the first precautionary step you should take is to sign the back of the ticket and keep it between now and the drawing.
Here are some steps to help provide additional guidance on mitigating risks. Additionally, it is important to consider other potential windfalls that may arise, such as the significant financial gain from selling a business or receiving an unexpected inheritance.
Maintaining your anonymity can assist you in evading appeals for financial assistance from various individuals, such as charitable organizations, distant acquaintances, relatives, and so-called financial “gurus” who will be vying for your patronage. It is advisable to consult state regulations to ascertain whether you can preserve your anonymity and steer clear of all such requests.
In different states, the rules for publicizing winners vary. For example, in New York, the names of winners are made public record. To maintain your anonymity and ensure that you receive your winnings, the company may set up a limited liability trust or a trust with a financial advisor, such as CPA Beth Gamel from Pillar Financial Advisors in Waltham, MA. In the case of Gamel’s client, who had won a lottery in the past, a lawyer was hired to claim the prize on their behalf, allowing them to remain anonymous. The same possibility exists in South Carolina as well.
Chart a trajectory and ascertain the regulations of the jurisdiction. Recipients of prizes are allotted a time frame ranging from 180 days to one year from the day of the lottery draw to redeem their winnings, contingent upon the location of ticket purchase.
You may want to compare the effective yield of the annuity with the amount of money you could earn by taking the lump sum and investing it, using the proceeds and paying the taxes. Kirsh notes that this form of payout has other drawbacks. People who have trouble controlling their spending might prefer receiving the money as an annuity in order to discipline themselves. With an annuity, you are only taxed on the payments you receive. A financial planner in New York, A. Michael Kirsh, says that if you choose to take the entire amount as a lump sum payment, you must pay taxes on the entire amount immediately. You have the choice between receiving the prize money in 30 installments over 29 years or taking the entire amount at once in the form of an annuity. See a tax pro before cashing the ticket.
Kirsh states, “An additional matter to contemplate is whether opting for an annuity will result in your family lacking the funds necessary to settle the estate tax in case of your demise prior to the completion of the 30-year duration.” Generally, individuals in such circumstances purchase life insurance policies to handle the estate tax expense. (Powerball also mentions in its Frequently Asked Questions that it will provide a lump sum payment for an annuity prize in the event of an estate.)
You should consult financial advisors to determine the best payment option that suits you and to ask for help in crunching the numbers. You have 60 days from the time you claim your lottery prize to weigh the pros and cons.
Avoid sudden lifestyle changes after winning the lottery, such as splurging on a fixed amount set aside for natural wants like building a collection of Birkin bags or trading up for a luxury car in Europe, buying a home, or quitting your job.
Presently, consider purchasing an economical model if you require a fresh vehicle. Guerdon Ely, a financial advisor in Chico, California, suggests that you may consider leasing a residence in the vicinity where you were contemplating relocation before finalizing any obligations. Reserve the significant expenditures for a later time.
When you no longer owe a dollar of debt, especially when you’ve paid down a dollar of that debt, whether you invest a dollar or not, it is true that Treasurys and CDs, like secure investments, have abysmal yields today. Whether it’s your mortgage rate or the interest rate on your credit card debt, the return rate equals the interest rate on the loan. There is no better investment than paying off all your debts, as I wrote in my previous post.
It is very challenging to know who is trying to help you and who is trying to help you assemble a team of financial and legal advisors in situations like this, says Ely. He recommends that you pick your own investment advisor, accountant, and lawyer, but it is important to work together with someone else who has already put together a group of advisors.
Before discussing your situation, it is important to carefully vet each advisor by checking the records of insurance agents and attorneys for any filed complaints with the Financial Industry Regulatory Authority.
If you are looking for lawyers specializing in estate and trust matters, you can search for them on the website of the nationwide directory called “Counsel Estate and Trust of Group A” or “Lawyers Estate and Trust of Directory Lawyers.” The website, which is accessible on the internet, allows you to search for lawyers based on their area of practice and location. You can also find the names of lawyers on martindale.Com, a website that provides a directory of lawyers nationwide. If you live in a small community and don’t know any lawyers, you may want to consider seeking a professional in the nearest large city.
As the quarterback, you have the option to request one of them to organize the collective endeavor. They can offer oversight and accountability to one another once you have made a decision on a strategy. To gather feedback, you can begin by having a fee-only advisor create a comprehensive financial plan and presenting it to the group. Ely suggests that your board of directors will act as the team that you assemble. Additionally, that individual can assume the role of the “villain,” refusing requests from individuals or organizations for contributions that you are not inclined to give.
It is too good to be true that you don’t understand that investments fall. Ask your advisors to put together a portfolio investment divided between fixed income bonds and equities (such as stocks). Then, for the first six months, they recommend not even touching it and putting the money in safe, short-term investments. Invest prudently.
Dennis I. Belcher, an attorney at McGuireWoods in Richmond, Virginia, explains that “Generating income requires a significant amount of initial investment, and once you begin utilizing that investment, it diminishes rapidly.” Particularly in today’s financial landscape, a method to exercise self-control is to solely utilize income and refrain from using the initial investment. It may require self-discipline to retain your profits and avoid impulsive spending, particularly if you are unaccustomed to substantial wealth. Adhering to a budget is essential.
In order to prevent becoming an easy target, it is advisable. According to Ely, “If you happen to win the Powerball, individuals will deliberately position themselves in front of your vehicle, hoping to be run over and subsequently sue you.” In the event that others perceive you to possess substantial wealth, they might seek ways to file lawsuits against you. This can range from dissatisfied spouses and former spouses to individuals who have won legal cases against you. Individuals who possess considerable wealth must exercise caution to avoid losing their assets to creditors. It is recommended to implement measures to safeguard one’s assets.
It may be possible to rely on a variety of strategies, either in combination or separately, to protect your assets. These strategies, also known as asset protection strategies, can create multiple barriers by utilizing exemptions provided by state laws, such as limited liability companies, limited partnerships, family trusts, and more. The best defense is to erect a variety of roadblocks that make it difficult, if not impossible, for creditors to reach your property and money.
Contributions of cash and donations of other appreciated assets held for over 12 months qualify for an income tax deduction of 30% and 50% of adjusted gross income (AGI) respectively when given to a public charity. You can use the annual charitable deduction to offset some of the extra income from your lottery winnings (or annuity payments if you choose that option). Make sure to strategize your charitable giving.
If you prefer not to be pestered by demands, check out my article, “Ways To Maintain Anonymity When Donating To Nonprofits.” If you happen to win the $1.5 billion jackpot and choose the $930 million lump sum option, but find it difficult to decide which charities to support by the end of the year, you might want to consider using a donor-advised fund. By utilizing a donor-advised fund, you can make a philanthropic contribution this year and receive a federal tax deduction for your irreversible donation. However, you can delay making recommendations about which charities should receive grants from the fund until a later date.
Review your estate plan if you want to share some of your largess with friends and family. This can be applied during your lifetime or when you pass away, with tax-free transfers limited to $5.45 million per person in 2016. The tax law of 2012 offers more flexibility than ever before. This may be the first time you need to plan for estate tax if you have suddenly become wealthy from your winnings.