What to do when you win the lottery

Enter5If you win the lottery, you won’t ever have to worry about money again — right?
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.

1. Remain anonymous if possible: 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.

2. See a tax pro before you cash the ticket:

There may be some tax dues so get correct advice on exactly how much is yours to avoid nasty surprises.

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.

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 neighbourhood where you were thinking of moving, before you make any commitments, says Guerdon Ely, a financial planner in Chico, California. If you need a new car, buy a budget model for now.

4. 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. With today’s abysmal yields on relatively secure investments like CDs and Treasurys, 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: Your best friend may not be the best person to tell you what to do. Approach the right people who may charge for their service.

Once you’ve decided on a plan, they can provide checks and balances on each other. You can ask one of them to serve as quarterback, coordinating the group effort. That person can also play the “bad guy”, declining requests from people or organisations for gifts that you don’t want to make.

6. Invest prudently: Ely 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, thy usually are.

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,” says Dennis I. Belcher, a lawyer with McGuireWoods in Richmond VA.

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 Powerball, everyone’s going to be laying in front of your car so you can run over them so they can sue you,” says Ely. It’s prudent to ensure you are not an easy target.

The best defence 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.

10. Review your estate plan: If your winnings have made you suddenly wealthy, this may be the first time that you need to plan a will. Plan for such things as executor’s fees. — forbes.com.

You Might Also Like

Comments

Take our Survey

We value your opinion! Take a moment to complete our survey