Have you ever dreamed of playing a huge lottery jack pot? You might get a chance this week because the two interstate lottery prizes total over a billion dollars.
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 – 1 in almost 300,000,000, in fact.
Often times, groups of employees have bought pooled tickets together that they want to share if they win. This gives you more chances of winning something. Of course, when you share with colleagues, the overall value of your stock will decrease.
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 a stand-alone purchase and not part of the group’s inventory. This would likely end up in court.
If you win, you need to be calm first. The winners will be inundated with requests from friends, relatives, and people seeking help they have never known before. Possibly turn off your social media accounts and tell very few people about it. Put together a team of a lawyer, an accountant and a 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 travel 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 may still be able to identify you, but it will take 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 from winning if 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 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 tickets than you can afford to lose. Buying tickets is not an investment but a way to help seniors and have a very small chance of a different life. Remember 1 in 300,000,000! Nonetheless, good luck.
Your financial future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also authored the book “Your Financial Compass: Safe Passage through the Turbulent Waters of Taxes, Income Planning and Market Volatility”. If there’s an area you’d like to see in the column, send your suggestions to gary@BoatmanWealthManagement.com.