Now that the Mega Millions Lottery has reached $540 million, people all over the country are clamoring for a ticket.
It's incredible to think what might happen if you win, but really ... what happens? How do you make sure that money, once won, doesn't evaporate into a cloud of taxes and Ferraris?
We'll tell you.
1. Sign Your Golden Ticket
It's important to sign the lottery ticket because it's a "bearer instrument," meaning that it's redeemable for whomever has signed it and presents a photo ID—unlike, for example, your investing brokerage account which is in your name and can't be claimed as easily as a ticket blowing away on the wind or being stolen. So, sign your ticket right away, if you haven't already. Even before you know you've won, it's always safest to sign the ticket after you buy it. No harm done by signing all your tickets, no matter what!
2. Don't Call Your Friends
Immediately calling everyone you've ever met just invites a deluge of people clamoring for a piece of you (and your winnings.) That's not to say you should take up living a double life or anything, but give yourself a few days or even a few weeks to let your new reality set in—don't immediately set out to test-drive Ferraris. During this time, think about your priorities and values. By setting boundaries and realizing your priorities before people come knocking, it will be easier for you to know who you really want to buy a new house for ... and who you don't. See more on how to protect your suddenly-sought-after self, below.
3. Keep Your Anonymity
If you let your name be released, you'll likely be contacted by all sorts of financial "consultants," legitimate and not, trying to make a grab for your business, not to mention charities and individuals seeking charity. Some past lottery winners have even felt the need for police escorts, have received threats and have been tempted to run away or leave their hometowns because of the sheer number of people vying for their money. Past winners like West Virginia's Andrew "Jack" Whittaker Jr. have been robbed, and others, like Florida's Abraham Shakespeare, have even faced violence after winning.
So, for obvious reasons, it's best to fly under the radar.
Anonymity rules depend on your state (in New York, for example, you won't have a choice about making your name public). If your state doesn't force you to make your name public, consider opening a trust or limited liability company to receive and process the winnings, so it's not in your name. If you did that, you could have a lawyer claim your winnings for you on behalf of your trust.
But before you rush out and create a trust or LLC "just in case," know that you'll have enough time to deal with this if it does come to pass. You'll usually have a year after the date of the drawing to claim your prize.
4. Find Yourself a Great Lawyer and Financial Planner
This should be one of your first steps, even before claiming your prize. Ideally, go with someone you have worked with before, or at least someone who's highly trusted by your close friends or family. This is important because these are the people who can help you figure out the best way to claim your prize, and whether you receive it as a lump sum or as an annuity over 30 years.
Your choices will depend on your personal situation. For example, you'll have to pay all your tax on the winnings at once if you get a lump sum, whereas you'll only have to pay for your winnings each year if you get it as an annuity. But there are other considerations: Such as the effective yield of the annuity compared to investing the proceeds of your lump sum on your own, and there could also be concerns about estate taxes if you pass away before those 30 years are up. Any time you receive a sizable sum of money, a good tax professional, lawyer and financial planner will help you work through complicated questions and arrive at the best answers.
If you need a lead, our LearnVest financial planners can help.
5. Consider How You'll Spend It
Although it would be tempting to say that most lottery winners mismanage their money and buy stupid things, a recent study actually showed that 47% of people said the first thing they'd do if they won the lottery would be to help out friends and family strapped for cash. Surprising, right?
And many lotto winners have done just that. For example, Georgia's Lee McDaniel, who won $5 million, used his money to make material upgrades to his home, and also to help out his sister, who needed a leg amputation. She would've had to live in a nursing home, but his money allowed her to build a ramp in her own home.
What would you do if you won the lotto?
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