What to do After you Win Mega Millions and/or Powerball
With the Mega Millions jackpot reaching $312 million and the Powerball jackpot at $125 million, people throughout the country may be dreaming of what they could do with this potential windfall of nearly one-half billion dollars. Although the odds of winning are extremely remote, our firm has worked with over a dozen lottery winners, proving that even the longest of long shots can come through once and a while.
If you are the lucky winner, there are several steps that should be taken before cashing in your ticket. Following are our recommendations:
- Protect your ticket. Take a photocopy of your ticket for your records and place the original ticket in a home safe or, preferably, a bank safe deposit box. If lost, the ticket could be presented by the finder and your fortune could be lost. Your photocopy of the ticket, along with other evidence of your purchase of the ticket, could be used as evidence to prove that you were the rightful owner of the ticket, in the event of loss.
- Contact an attorney. The attorney should have experience in estate planning, tax law, and lottery law, and can properly advise you about the events that are about to change your life. In Ohio (and most other states), the attorney can draft a trust to avoid the publicity associated with winning the lottery. The trustee of your trust would then collect the lottery winnings on your behalf. This will avoid the need for you to go before the media to collect your big check (literally and figuratively). By avoiding this publicity, you can avoid the numerous requests for donations and gifts, and even threats, that other lottery winners have faced. Keep in mind that in Ohio, although a trust will keep your personal information private from the public, the Ohio Lottery Commission must be provided with your information to ensure that you are not delinquent in paying taxes or child support.
- Contact a financial advisor. Your attorney should be able to recommend a financial advisor with experience in dealing with enormous wealth. This advisor will be instrumental in making sure that your new found wealth will last. Although it may seem that $312 million could last for generations into the future, the reality is that you will receive an amount less than that. If you take a lump sum distribution, the large prize amount is discounted to its present value (in this case, about $198 million). Additionally, taxes will be withheld from your payment (in Ohio, 28% for federal income taxes and 6% for Ohio income taxes), leaving you with about $130 million. Even though taxes are withheld, you will still owe additional federal taxes, since your winnings will place you well into the highest tax bracket (35%). You may also owe additional state and municipal income taxes. You should conservatively hold onto an additional $20 million to cover your future income tax bill, leaving you with $110 million. While still a substantial sum, history has shown that about 70% of lottery winners end up in worse financial shape after winning the lottery than they were prior to winning. A good financial advisor can help you avoid being on the wrong side of that statistic.
- Do not talk about winning the lottery. Although you would be very excited about winning the lottery, word of your luck will spread quickly. If you discuss your winning ticket, you will undo the privacy created by using the lottery trust described above. Your attorney is ethically bound by the attorney-client privilege to keep your information confidential. Your financial advisor will also be required to keep your information secret. Your friends and family are not similarly bound, and will possibly pass this information on to others. As difficult as it may be to keep your good luck quiet, you must do so.
- Do not change your lifestyle. While your first thoughts may be to quit your job, buy a big house, and travel the world, I would recommend against this. Take time to make plans for your new wealth. Determine what is most important to you and your family and how your wealth can be used in a manner consistent with your values. This may include establishing a dynasty trust, whereby you can fund the college educations for future generations of your family. This may include establishing a charitable trust, allowing you to support your church, your alma mater, or other local or national charities. And yes, this may include quitting your job, buying a big house, and travelling the world. What is important is that you have a plan before spending your funds. This will ensure that your funds can last.
While it is fun to dream about the unlikely “what if…" of winning the lottery, it is more important to plan for the more realistic “what ifs." Set up an estate plan, including a will, trust, power of attorney for assets, power of attorney for health care, and living will. Have a financial plan in place to address retirement and college funding. Insure against the unexpected, including life insurance, disability insurance, and long-term care insurance. Make sure your business has an exit strategy, including a strong operating agreement and buy-sell agreement. While some say it is better to be lucky than good, having a good plan in place will ensure good fortune for your family, even if you are not lucky enough to pick the winning lottery numbers.