Lottery Winner Now What

I Won The Lottery, Now What?

We have represented many lottery winners over the years.  If you are a lottery winner, “Now what?” is the question on your mind.  We approach this question with our clients not just from a legal or financial perspective, but from from the view of its wholistic impact on both the individuals and the family.

We have seen the full spectrum of experiences with lottery winners, often as a function of how well they follow our advice.  Some winners have catapulted to great accomplishments personally and as a family.  Others have devolved into self destructive behaviors that wipe out their fortune and their family.  Some winners have minimized the resulting taxes.  Others have contributed substantial portions of their winnings to the politicians.  Some have created long lasting business, financial and family empires that will go on for generations.  Others have created dependencies and incapacitated their children and grandchildren.

What makes the difference?  Here are a few of the lessons we have learned in helping our clients produce healthy positive results.

Minimizing Income Taxes As a Lottery Winner

Lottery winnings are taxed as income.  Consequently, one of the most immediate issues with Lottery winners is the income tax consequences.  If they elect to take the lump sum, a big chuck of the earnings is withheld to pay the income taxes.  There are strategies that can reduce, minimize, and sometimes even eliminate such taxes.  Each situation is different, so there is no “one size fits all” approach.

The biggest “Lottery winner now what” challenge to minimizing the income taxes is that it requires early intervention, BEFORE the lottery winnings are claimed.  Too often, the income tax questions are raised after the fact, when the planning options are closed.  The reason governments sanction, endorse and adopt lotteries is because they generate revenue, both from players who win and players who lose.

If income tax planning is going to be an important consideration, as a matter of timing, it must be addressed first.  The taxes may not be the most important consideration.  But in the beginning they can be the most urgent.

Maintaining Privacy After Winning the Lottery

One of the most precious commodities lottery winners come to value the most is privacy.  They become targets for every imaginable scheme.  It can be tough to sort the scams from the legitimate advisors who in fact have the ability to help and bring value.

One of the biggest “now what” questions lottery winners face is how to protect their privacy.  How do you go you on with life without unwanted attention and prying into your private affairs?  How do we enjoy wealth, without being conspicuous or targets.  How do we maintain the safety and security of family members, particularly as travel, investments, and business dealings, expand.

Appropriate legal structures are vital to insulate and protect the family’s privacy.  To get an appropriate level and quality of legal planning, it is important to engage advisors that are familiar with the scope of the issues, and have ready solutions that can be tailored and custom fit to ultra-high Net Worth families.

There are people who enjoy all the benefits of lottery winnings, but their friends and neighbors are none the wiser about where they got their money.  We know this because we have helped make it happen.  Acting early in the process makes a big difference on the level of privacy that is possible.

Lottery Winners and Their Family

Winning the lottery does not happen in isolation.  It impacts the family in significant ways.  Early in the process a Family Counsel is crucial to helping the impact be positive instead of negative.  How and when the family is brought into the loop regarding lottery winnings can make a great difference on how they handle it going forward.

To be blunt, we have seen lottery winnings blow families apart.  We have also seen families come together and create something wonderful and long lasting.  The odds of achieving a positive outcome go up dramatically with appropriate planning.

It has been our experience that lottery winners do better when they take time to retreat and deliberately consider how this is going to change their lives and the lives of their loved ones.

Estate and Business Planning for Lottery Winners

In addition to being taxed as income, lottery winnings are going to be subject to estate taxes when the winners pass away.  Such estate taxes can reduce the size of the estate by nearly half.  Such taxes are also, for the most part, optional.  They are only paid by those who have not done effective planning.  There are a full range of tools to help with managing the business and the estate going forward that address these issues.  Some of the structures may include:

Dynasty Trusts —  Multi-Generational Long Term Succession

Family Office — Control

Family Bank — Equity

Family Foundation — Influence and Significance

To be successful, managing lottery winnings will become the business of the family.  The families that get good at the business of managing wealth, will thrive and prosper long term.

A Successful Lottery Winner’s “Now What?” Tale

A great deal hinges upon the size of the lottery winnings relative to the amount one has already accumulated.

I generally ask my lottery winning clients how this will impact their lives.  Some years ago when I asked a client this question, she responded “it means I will hit my financial goals five years ahead of schedule.”  She had already built her own financial success, and had already come to grips with handling wealth personally and within her family.  Now, years later, her estate has grown, and her family is thriving.

Such an outcome is never an accident.  It happens on purpose.  There is always a plan.

We have been grateful for our small role in designing and implementing plans that help families do well with sudden windfall increases in wealth.