Strike it Rich: What to Do if You Win the Lottery
Date: July 19, 2016
If you think winning the lottery means waving goodbye to your money problems, think again. A lottery win can bring as many money issues as it solves, given the many people and entities who would like a share in your winnings — including tax authorities. A 2015 study by the Camelot Group found that 44 percent of winners blow through their entire winnings in just five years. Here are some tips to avoid that.
Safeguard Your Ticket
The numbers match! Your first reaction should be to safeguard that ticket. A lottery ticket is considered the property of the bearer: Whoever signs the back and presents two forms of identification is entitled to the money. Your only recourse if the ticket is lost or stolen is a civil lawsuit against whoever took it, and proving that might be difficult.
So sign the back right away, then stash the ticket in a safe place — that means a safe deposit box, not between the pages of your diary. This gives you some time to take the necessary financial steps before you announce your good luck to the world.
Assemble a Team of Professionals
You’re going to need help managing your fortune. Tax professionals can help you decide whether to take the money in a lump sum or an annuity, and investment experts can advise you on where to put the cash. A lawyer can make sure your loved ones get the money in case something happens to you.
Ask friends for references without mentioning your big win. The tax adviser who helped your best friend when she inherited her parents' estate could be just the person you need — but do a background check before you sign on the dotted line.
Don’t Break from the Norm
People tell you not to do anything drastic for at least six months after a divorce. Give yourself the same breathing room after winning the lottery. Don't make critical lifestyle changes (like quitting your job or selling your home), and keep the news as quiet as possible. You can remain anonymous in some states, but you'll be named in others, so give yourself the full amount of time — often six months to a year — to step forward and claim the prize. This will keep long lost relatives, charities and financial swindlers away until you have a financial plan in place.
Pay All Your Debts
Your first act after the money comes in should be to pay off your debts — everything from the taxes due on your lottery winnings to old student loans and credit card debt. Unless you have a very low interest rate on your primary home, pay off your mortgage as well. After that, give yourself a generous allowance for splurges, but avoid making major purchases for another six months. It's just too easy to blow through your newfound wealth.