You just won the lottery, now what?

Posted by Bruce Mc on Jul 29, 2009 in Information, Opinions | 3 comments

          You won the lottery.

          Very cool, but now what do you do?

          A reader suggested this post topic, and I do my best to respond accordingly to post suggestions. I don’t believe his request was just as to have won the lottery as much as “if one comes into a large amount of money all at once. What is the best thing to do?” I believe the trains of thought will equally flow from situation to situation but, I’m going to focus on Lottery winners because most other instances of large sums of income are very subject to individual circumstances (Estates, Trust, Company buyouts, gifts, etc.). 

What not to do – Even though you will be very excited and want to tell everyone you know, it is extremely important not to tell anyone (other than your spouse.) Especially, do not tell anyone from the media.

             The first choice a lotto winner has to make is do they take all the income at once or do they go for the yearly payouts. This in itself is subject to many trains of thought. If you choose to take a lump sum, you will be required to surrender a significant percentage of the total amount to income taxes. Of course, you will still have a large sum of money left, to spend or invest as you see fit. If you choose annuity payments, you will pay taxes on the payments as you receive them. It’s important to keep in mind is that tax rates may change over the years. It is possible that you could be paying a higher tax rate ten or twenty years down the line.

            But let us back up a bit. Most winners take anywhere from four days to two weeks before turning in their winning ticket. Why? Are they nuts? No, actually they are being very smart, before turning in that ticket to get the millions, they are busy getting some very important legal advice. –  It is not a good idea to try to manage your lottery winnings yourself, nor should you enlist the services of your spouse or significant other, your siblings, any other relative or a personal friend.- My recommendation, see an accountant/tax professional before turning in that ticket about what, tax-wise, is the best thing to do for your situation. (Some other members of your financial team might and should be –  a Reputable Lawyer, a Reputable Financial Advisor, and most of all your good, loyal friends and family to keep you in check.) 

          The most important decision to make initially is who’s going to be accountant, financial adviser and lawyer?  I don’t think they should be the same person. To find these people, referrals are best. 

            Okay, now, decide on a lump sum or payments. This decision depends on what you want to do with your money and advice from your team of advisers.  The lump sum will equal less than the total of the payments over however many years. With the lump sum invested properly, you’ll probably have more at the end. If you’re a person who really can’t control your spending, annual might be better. (do the math see After Winning the Lotto, Should You Take the Cash Value or Annual Payments?) 

           When you get your money, you need a bank. Remember that when dealing with small banks, go straight to the VP or upper management. With larger, national banks, go to their Private Banking or equivalent division for customers with great wealth. They may have more options when it comes to banking, and have a better grasp of the disclosure and security procedures in the bank. 

           Invest, invest, invest. Diversify your portfolio, but have a cap on risky investments. Consider safer routes, such as a retirement plan, time deposits, Certificates or Money Markets. Spend a little time planning, get some help when needed, and use moderation. Ask your local credit union / bank if they need another volunteer board member. (Learn the financial ropes.) 

           Before you collect the money, write down everything you would like to do or accomplish, what you want to avoid down the road, and how you feel at the moment about the present situation and the future. This is so, in the future; you can go back and see how you felt and what you wanted to do when you didn’t know what it was like to live like a millionaire. This could be just what you need if your view of life is eventually distorted by money. 

           Even though you may want to immediately quit your job, you should consider a leave of absence instead. If you’ve won a great deal of money, your employers may assume you want to quit your job anyway, even if you have stated this is not the case. Because they may think you don’t need the money or the job, you may be passed over for promotions, raises and other advances. Co-workers may be resentful as well. If you have no intentions of ever leaving your current place of employment, meet with your superiors to make sure they know this is the case, and that your work will not suffer. If you need to, take a vacation or leave of absence until the excitement dies down. (It’s best not to make your windfall a daily topic of conversation.) 

A finial note from me: 

          Another thing you’ll need to consider is how money may/will change you as well as your friends and family.

• Will things be different between everyone?
• Will people expect you to buy every drink or pay for every meal?
• Will you be expected to buy extravagant gifts through the holidays?

          Make sure your loved ones know you’ll still be the same person and don’t intend to go overboard with the spending. Winning the lottery is an exciting event. Too many people enter into this contest blindly. Knowing what to expect can mean the difference between a year of impulse buying and a lifetime of comfort. 

You won the lottery! Now what? Has a few more notes on this subject.