Claiming a lottery prize can be exciting and, at the same time, exhilarating. However, you must follow a process to ensure you are protected and in control of your winnings. This article will discuss simple tips to ensure your safety and minimize potential risks of loss.
Table of Contents
Hire a Competent Lawyer
Hiring professionals should happen even before you claim your winnings. Perhaps the first professional you should look for is a lawyer. Lawyers have different specializations.
There are tax, asset protection, and trust & estate lawyers for guidance regarding lottery winnings. Of course, you could always consult the attorney you have already worked with.
A lawyer will help you keep your winnings legally, minimize tax liability, protect your identity, establish trust in claiming a lottery prize, represent you in court, and more.
When choosing a lottery attorney, the crucial factors are fees, experience, background, and references.
For fees, do not expect to work with a pro-bono attorney since you will have the money to pay him. Regarding fees, talk with your attorney about the payment agreement upfront. If he tells you to pay him a percentage of your winnings, you better look for another lawyer.
Hire More Professionals When Claiming a Lottery Prize
Apart from enlisting the services of a tax attorney, you might also need the help of an accountant to deal with tax-related matters of winning the lottery. A tax and accounting professional could advise you to choose a lump sum or annuity when claiming a lottery prize.1
You might need to hire a financial planner or an investment advisor. This person will help preserve your wealth and create a steady income out of your winnings for life.
It is always best to work with someone experienced in handling matters related to lottery winnings. Thus, you must hire a lawyer, a financial planner, and an accountant to constitute a team that will handle your winning. Get your team working and don’t tell everyone.2, 3
If possible, instruct your team if it’s possible to claim the prize anonymously and keep your privacy safe.4
Take The Annuity
We are familiar with people who win big windfall from the lottery and then lose them so quickly. To preserve your fortune, experts recommend taking the annuity rather than the cash option for lottery winners. So, no matter your foolish decisions this year, you’ll have an enormous check waiting for you next year – until the end of your annuity year.
Nick Holeman, a certified financial planner at Betterment, recommends taking the annuity option.
Annuity lets you receive your winnings as a pension or allowance.
Pros: You could have guaranteed income in years to follow. This is a good option for people who admit they cannot control their spending urges.
Cons: You could run out of money immediately after receiving the annuity, like William Post III.5 In 1988, Post won $16.2 million in the Pennsylvania Lottery. He received his first annual payment of about $500,000 but spent $300,000 in 3 months.
Receiving your winnings through an annuity also involves the disadvantage of dying even before you receive all your money. Increasing tax rates could also reduce your annuity.
Take the Lump Sum
A lump sum is a one-time cash payout that some professionals may warn you against. Still, after learning its pros and cons, you can make the decision.
Pros: Taxes could be low when you take the lump sum. Through a smart investment strategy, you could multiply your money. Just calculate how much you will spend and stick to it. This is where you will need the help of an investment advisor and/or financial planner.
Cons: The money could run out immediately. Thus, it is wise to have strict control of your spending. Also, ensure you will give away only a set amount of money to friends and relatives. Whatever you do, consult with your financial planner so you will know the effects of your spending on your assets.
Explore more:
References