Have you ever dreamed of hitting a huge lottery jackpot? You might get a chance this week as the two interstate lottery prizes are over $ 1 billion. What would you do if you won all of this money?
To have a plan. This planning really starts after you win, as the odds of winning are very slim – one in nearly 300 million.
Often times, groups of employees have bought pooled tickets together to share the money when they win. This gives you more chances of winning something. Of course, when you share with colleagues, the value of your share diminishes.
When buying tickets this way, everyone should have a photocopy of all the tickets the group owns. There have been legal proceedings in which someone claimed the winning ticket was their individual purchase and not part of the group’s inventory. A case like this would likely end up in court.
If you win the jackpot, the first thing you need to do is stay calm. The winners will be inundated with requests from friends, relatives, and those seeking help they didn’t know before. Possibly turn off your social media accounts and tell very few people about it. Put together a team of lawyer, accountant and financial planner.
Many experts recommend signing the back of the ticket and making multiple copies to prove possession when separated from your winning ticket.
Where you buy your winning ticket determines whether you need to be publicly named as a winner. In Pennsylvania, your identity will be revealed.
If you bought the ticket in Ohio, there may be a way to hide your winnings. Not only do you go on a special trip across state lines for this purpose, but it’s a huge perk when you are there. If you win, it might be a good idea to take a trip for a week or two to shake off part of the news cycle.
Sometimes you can establish a trust or family partnership to protect your identity. People might still be able to identify you, but it takes more work. You need to make sure you have an up-to-date estate plan as things can change quickly. There cannot be any loopholes in your liability insurance either, as assuming you have deep pockets increases your chances of being sued.
Taxes take up a large part of your profits. You have the maximum income tax rate of 37%. Pennsylvania previously exempted residents’ winnings when they bought their tickets in the state, but that changed in the new law. You pay state taxes, and federal tax law limits your deductions for paying local taxes to $ 10,000.
You need to decide whether to make a lump sum payment or to receive your prize over 30 payments. The number advertised as a prize increases your profit over time. It’s bigger because the undistributed money will earn interest in 30 years.
Someone who is not good at money and is spending it all may not need full access. A number of cases have been reported of winners making millions of dollars and going bankrupt a few years later.
If you control spending and have a good finance team, you can often earn more by taking the reduced lump sum and investing. With this size of investment, your asset allocation would involve many things that a normal citizen does not need to consider.
As with any game of chance, don’t spend more money buying tickets than you can afford. This is not an investment but a way to help seniors with very little chance of living another life. Remember one in 300 million!
Gary Boatman is a Monessen-based Certified Financial Planner and author of Your Financial Compass: Safe passage through the turbulent waters of Taxes, Income Planning and Market Volatility.