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10 Things To Do When You Win The Lottery

Gallery: 10 Steps To Take When You Win A Lottery Jackpot

Editor’s note: This post was updated on January 12th, 2016, to reflect the current $1.5 billion Powerball jackpot and the 2016 lifetime exemption from estate and gift taxes.

The jackpot for tomorrow’s Powerball drawing has hit $1.5 billion. If you win it, you won’t ever have to worry about money again–right?

With good money management you–and your heirs–could live handsomely for many, many years. But from the moment that you claim that prize, you will be descended upon by vultures who want a hefty helping of those winnings. And if you didn’t have smart money habits up until now, you could easily turn out to be your own worst enemy by quickly squandering the fortune. (See my post, “Thieves And Forgers Rush In Where Big Spenders Dare To Tread.”)

The first precautionary step you should take between now and the drawing is to sign the back of the ticket, says Carolyn Hapeman, a spokeswoman for The New York Lottery. A lottery ticket is a bearer instrument, she explains, meaning that whoever signs the ticket and presents a photo ID can claim the prize. So if you haven’t signed the ticket and it blows out of your hand while you are waiting for a bus, or if you show it to a buddy in a bar and accidentally leave it on the counter, you’ve lost the loot.

Here are some steps to help you steer clear of additional risks. Most of them work well for other windfalls too–for example with sudden wealth that comes from an inheritance or the sale of a business.

1. Remain anonymous if your state rules permit it. Once people know you’re suddenly wealthy, you’ll be badgered by requests for handouts from everyone from charities to long-lost friends and relatives–not to mention all the financial “experts” who will be vying for your business. So check state rules to see whether you can dodge them all by remaining anonymous.

Rules on winner publicity vary by state. In New York, for example, winners’ names are a public record. Elsewhere it may be possible to maintain your anonymity by setting up a trust or limited liability company to receive the winnings, says Beth C. Gamel, a CPA with Pillar Financial Advisors in Waltham, MA. A client of Gamel’s who won a past lottery did that, and had a lawyer claim the prize on behalf of of the trust. In South Carolina, it’s also possible to remain anonymous.

Depending on where you bought the ticket, prize winners have between 180 days and one year from the date of the drawing to claim their prize. So find out what the state rules are and plot a course.

2. See a tax pro before you cash the ticket. You have the choice between taking the prize money all at once or having it paid out in 30 installments over 29 years in the form of an annuity. With a lump sum payment, you must immediately pay tax on the entire amount, says Michael A. Kirsh, a financial planner in New York. With an annuity, you are taxed only as you receive the payments. People who have trouble controlling their spending might prefer the discipline of receiving the money as an annuity. But this payout form has other drawbacks, Kirsh notes. You will want to compare the effective yield of the annuity with what you could earn by taking the money as a lump sum, paying the taxes and investing the proceeds.

Another issue to consider is whether taking an annuity will leave your family without the cash they need to pay estate tax if you die before the 30-year period is up, Kirsh says. In such situations people typically buy life insurance policies to cover the estate tax bill. (Powerball also says in its FAQs that it will cash out an annuity prize for an estate.)

You have 60 days from the time you claim your lottery prize to weigh the pros and cons. During this time, ask advisors to crunch the numbers and help you decide which type of payment suits you best.

3. Avoid sudden lifestyle changes. For the first six months after you win the lottery, don’t do anything drastic, like quitting your job, buying a home in Europe, trading up for a luxury car or building a collection of Birkin handbags. Meanwhile, set aside a fixed amount for splurgesit’s only natural to want to celebrate your windfall.

Save the big purchases for later. For example, you could rent a house in the neighborhood where you were thinking of moving, before you make any commitments, says Guerdon Ely, a financial planner in Chico, Calif. If you need a new car, buy a budget model for now.

4. Pay off all your debts. As I wrote in my post, “The Best Investment Advice I Ever Received,” there is no better investment than paying off debts. Whether it is credit card debt or a mortgage, your rate of return equals the interest rate on the loan. With today’s abysmal yields on relatively secure investments like CDs and Treasurys, that’s especially true. When you’ve paid down a dollar of debt, that’s a dollar you no longer owe. When you invest a dollar, you can’t be sure whether it will grow or shrink.

5. Assemble a team of legal and financial advisers. In situations like this it’s very hard to know “who’s trying to help you and who’s trying to use you,” says Ely. Rather than signing on to a group of advisors that someone else has put together, he recommends handpicking your own lawyer, accountant and investment advisor, and requiring them to work together.

Carefully vet each advisor before discussing your situation. Check broker records at the Financial Industry Regulatory Authority. For attorneys and insurance agents, see whether there have been any complaints filed with state disciplinary authorities.

If you live in a small community and don’t want lawyers there to know your business, seek out a professional in the nearest large city. Names can be found on martindale.com, the nationwide lawyers’ directory that you can search by location and area of practice, and on the Web site of the American College of Trust and Estate Counsel, a group of trust and estate lawyers.

In effect, the team you put together will function as your board of directors, Ely says. You can start by having a fee-only advisor put together a long-term financial plan and running it by the group for comment. Once you’ve decided on a plan, they can provide checks and balances on each other. You can ask one of them to serve as quarterback, coordinating the group effort. That person can also play the “bad guy,” declining requests from people or organizations for gifts that you don’t want to make.

6. Invest prudently. Ely recommends putting the money in safe, short-term investments and not even touching it for the first six months. Then ask your advisors is to put together an investment portfolio divided half-and-half between equities (such as stocks) and fixed income (like bonds). Don’t fall for investments that you don’t understand or that sound too good to be true.

7. Live within a budget. Especially if you’re not accustomed to having a lot of money, it may take some discipline to preserve your winnings and not go on a wild spending spree. One way to restrain yourself is to only spend income–not principal. Especially in today’s investment world, “It takes a lot of principal to generate income and once you start spending principal, the principal quickly dissipates,” says Dennis I. Belcher, a lawyer with McGuireWoods in Richmond VA.

8. Take steps to protect assets. People who are worth a lot of money need to guard against losing assets to creditors. They include everyone from disgruntled spouses and ex-spouses to people who win lawsuits against you. If people think you have deep pockets they may look for reasons to sue. “If you win the Powerball, everyone’s going to be laying in front of your car so you can run over them so they can sue you,” says Ely. It’s prudent to ensure you are not an easy target.

The best defense is to erect a variety of roadblocks that make it difficult, if not impossible, for creditors to reach your money and property. These asset protection strategies, as they are called, can range from relying on state-law exemptions to creating multiple barriers through the use of trusts and family limited partnerships or limited liability companies. It may be possible to rely on a variety of strategies, either separately or in combination with each other.

9. Plan charitable gifts. You can offset one of the additional income from your lottery winnings (or the annuity payments if you take it that way) with an annual charitable deduction. For gifts to a public charity, donors are entitled to an income tax deduction for up to 50% of adjusted gross income (AGI) for cash contributions and up to 30% for donations of other appreciated assets held more than 12 months.

If you are take the $1.5 billion prize in a $930 million lump sum, and are unable to decide between now and year-end which charities to support, it may be worth considering a donor-advised fund. With a donor-advised fund, you can make a charitable donation this year and claim a federal tax deduction for your irrevocable contribution but postpone recommendations about which charities should receive grants from the account until some time in the future. If you don’t want to be badgered by requests, see my post, “How To Stay Anonymous When You Give To Charity.”

10. Review your estate plan. If your winnings have made you suddenly wealthy, this may be the first time that you need to plan for estate tax. The 2012 tax law offers more flexibility than ever before. As of 2016, each person has a $5.45 million limit on tax-free transfers, which can be applied during life, when you die or some combination of the two. So if you want to share some of your largess with family and friends, this is the ideal time to do that. For details, see my posts, “6 Ways To Give Family And Friends Financial Aid” and “Give Your Estate Plan a Checkup.”

I’m a financial journalist and author with experience as a lawyer, speaker and entrepreneur. As a senior editor at Forbes, I have covered the broad range of topics that…

I’m a financial journalist and author with experience as a lawyer, speaker and entrepreneur. As a senior editor at Forbes, I have covered the broad range of topics that affect boomers as they approach retirement age. That means everything from financial strategies and investment scams to working and living better as we get older. My most recent book is Estate Planning Smarts — a guide for baby boomers and their parents. If you have story ideas or tips, please e-mail me at: deborah [at] estateplanningsmarts [dot] com. You can also follow me on Twitter

If you didn’t have smart money habits up until now, you could quickly squander the fortune.

What happens when you win the lottery – and how it changes your life

Ruth Breen, from Wigan, scooped £1m on the EuroMillions five years ago. Here’s what happened after she found out she had become a millionaire

  • 16:30, 8 OCT 2019
  • Updated 10:39, 10 JUN 2020

Millions of people play the lottery every week, yet for many, actually winning is something that can only be dreamt of.

But what if that dream becomes a reality?

This is what happened to single mum Ruth Breen five years ago when she scooped £1m with a EuroMillions Millionaire Raffle ticket.

“It still feels incredible,” say the 39-year-old from Wigan. “I thank my lucky stars every day and I am hugely grateful.

“It is the best feeling in the world knowing I am financially secure.”

Ruth bought her ticket online but waited hours to check her winning tickets after receiving an e-mail to alert her to news about her ticket.

“You get the same generic email whether you have won £2.50 or £3m,” she explained.

“I had a few of those email’s historically where I had won a few quid and so when I got that email again, I wasn’t really over excited about it.

“I thought ‘Oh great, I’ve won another couple of quid, fabulous.’”

However, when she finally opened that e-mail on her lunch break at Wigan Infirmary where she works as a midwife, Ruth’s life changed forever.

“I checked my email’s in the morning before work and then was in a bit of a hurry so waited until lunch time so I was going about my business at work, minding my own, completely unaware I was a millionaire. That amuses me still.

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“At lunch time when I got the opportunity to log onto my account and open this message, it was a little bit surreal I suppose is the best way to describe it.

“I couldn’t believe my eyes. It said ‘Congratulations, you have won a million pounds and please ring this telephone number which is for Camelot to confirm your prize and that you are in fact the worthy winner’.

“So I rang them up and they confirmed that I was the very lucky EuroMillions Raffle winner from the draw the previous evening and it still didn’t seem very real at that point. It was a bit of a blur.”

Within a couple of days, Ruth was sat talking to a winner’s advisor from Camelot, who is the operator of the UK National Lottery, in her home and what follows is an extensive check to make sure everything is legitimate, a winners reveal – if you choose to go public – and a lot of financial support.

Ruth said: “They had to go through due diligence and checks and make sure that you are who you say you are and that you purchased the ticket legally and legitimately which eventually all checked out fine.

“They did ask who I had already told about the win and about keeping it quiet until you had been visited my Camelot and they have verified that it’s all legitimate.

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“I had only told two close family members and the girls who were with me at the time I found out but they were sworn to secrecy.”

The advisor will talk winners through what happens next and how they will actually get the money you have won.

Ruth also explained that Camelot will recommend you use their private bank because of the extra security it offers to such a huge sum of money.

“During the same meeting, my new bank manager arrived quite unexpectedly. I didn’t know who it was for. I never heard of them so that was a bit of a shock.

“But how lovely? Nicer problems to have so they say. He had to go through some more due diligence and check that I was who I claimed to be and that I was in a position to set up an account with them because apparently they don’t let any old riff raff in. So that was all good fun.”

With legalities out of the way, the next question is, do you want to go public with your win or remain anonymous?

“My initial instinct would be to keep it quiet,” Ruth said, “But the more I thought about it, and the advisor from Camelot showed me a little DVD film of previous winners who told their stories trying to keep it a secret, I think sometimes things can get blown out of proportion when it is all hearsay and rumour.

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“One minute Ruth’s won a thousand pounds, next minute she’s won two, next minute I’ve won five and the next thing you know you have got begging letters in the post or people randomly knocking on your door. All this potential hassle.

“So I decided it was probably the best thing to put it out there, tell the world, sure everyone would be happy for me and if they’re not, do I care? Not really. It’s their issue not mine.”

With days to go before the big reveal, and shifts to complete at work, Ruth said that there was one purchase she wanted to make before showcasing her new millionaire status to the world.

“After work on the Saturday, I legged it over to the Trafford Centre, kitted myself out with a new outfit and some rather pleasant shoes.

“You’ve got to do it properly if you’re going to be in the press. Don’t want to look too shabby so I treated myself, why not?

“All I ever dreamed of was wanting a pair of Jimmy Choo’s in the past so that became a reality which was a little bit surreal, again.

“I couldn’t really comprehend it and it was all a little bit of a whirlwind.”

A Wigan Warriors fan, Ruth’s press conference took place on Monday July 14 2014 at the DW Stadium, the home of the rugby club.

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“I got to spray champagne all over the pitch with a million photographers telling me to smile, look this way and that way. It was like nothing you could ever imagine.

“After that, probably within a few days, my new bank account was open, the money was in there and it was crazy.”

But Ruth has said that you are not just left to deal with this new found wealth on your own.

Once you have had time to digest what has happened, Camelot will offer winners a meeting with lawyers and financial advisors to suggest “how you look after a large sum of money, how to invest it or what’s sensible and what’s not.”

“I was very thankful for the advice that was given to me,” Ruth said.

“This money has to last forever and it’s got to keep me and my daughter comfortable for as long as it can.”

So, what do you do with a million pounds?

Ruth was able to send her daughter, who was 11 at the time, to private school and reduce her own hours at work.

“Yes, £1m is a life-changing sum of money but when you are 35, sadly it’s not enough to retire on,” she said.

“So to be able to reduce my hours just offers a work life balance and again, gives me choices that I previously didn’t have. It’s been pretty awesome.

“I don’t have to worry about some of the things I did before.

“It’s just a fantastic feeling being able to pretty much do what I want, when I want and go on whatever holiday I want to go on and not have to worry that a bill is coming at the end of the month and there not being enough salary to cover it all.”

Some lottery wins can come with negativity but Ruth has said she didn’t experience any of that thanks to her supportive family.

“It is life-changing but money definitely doesn’t buy happiness. It certainly enhances happiness and gives you choices which is definitely what I found.

“I helped my brother to buy a house, I paid off my parent’s mortgage and they all get much nicer birthday and Christmas presents than they did get before.

“I didn’t give any big lump sums out or anything like that but when people have needed help or I felt that I was in a position to do something nice for them then I was fortunate to lend a hand now and then.”

So once you have won the lottery once, do you carry on playing?

“Absolutely,” Ruth said, “Especially if it’s a big rollover.”

“Lightning can strike twice. There are some winners who have won big more than once, I think maybe seven. So why not?

“But one of the biggest reasons I have continued to play is because the lottery raise approximately £30m a week for good causes throughout the UK and it’s just a way of being able to give back.

“And when that gamble pays off, it really does. As investments go, it’s a great return.”

Ruth Breen, from Wigan, scooped £1m on the EuroMillions five years ago. Here's what happened after she found out she had become a millionaire ]]>