Here's What To Do When You Win the Lottery

There are few things in life that can make your day as much as winning the lottery. But what do you do once you have won? Most people would buy a house or start a family, but not everyone has those plans for their future. So how should one spend their money wisely and responsibly after they win the lottery? Here is some advice on how to handle this huge windfall of cash!

Before You Claim Your Prize, Here’s What You Should Do

Be cautious and don’t let your excitement get the better of you after winning a lottery. Rather than going out to collect the prize, it is important that winners take some time before making any drastic changes in their work or lifestyle. This way they can come up with an appropriate plan for managing all those new resources without putting anything on hold at home or work.

A stable base is essential for long-term good fortune so be sure not to rush things when claiming a winnings ticket from the lottery; rather take precautions by consulting trusted practitioners who have dealt with this type of situation before – like lawyers, accountants, financial advisors etc., as these professionals will assist you in managing your assets while avoiding major life shifts such as quitting one’s job

Don’t be Hasty in Claiming Your Prize

Once you’ve purchased your ticket, don’t run out to collect your prize. This is essential for two reasons. First, claiming your ticket within a week of the announcement risks causing more of a stir than required if the award is large enough to draw media coverage.

Second, and even most significantly, giving yourself at least a week to collect your reward gives you plenty of flexibility to prepare for whatever happens next. If you wish, you should be able to wait even longer than a week. Most lotteries owe winners six to twelve months to collect their prizes, so review the laws of the issuing authority to make sure you have as much time as you think you do.

Safeguard Your Ticket

To safeguard the winning lottery ticket, it is important to take precautions before doing something else. If you drop your ticket and can’t claim that you’re the legitimate owner, then there’s a good chance that all of this will be for nothing. To avoid such an occurrence from happening, create physical or digital backups in two separate locations: one on an encrypted online storage drive/account; another on an external device like a hard disk or flash drive–preferably at home locked up in case someone breaks into your house looking for valuables when they find out about how much money was just won!

Don’t Give Up Your Job or Tell Anyone of Your Good Fortune

As tempting as it might be, the time between realizing you have a winning lottery ticket and stepping up to collect your prize is not the best time to leave your work.

In reality, you shouldn’t tell anybody about your good fortune but your immediate family (aside from girls, who are apt to brag), and especially not your coworkers. The last thing you want is for your manager to start searching for a substitute once you’ve checked out and are about to leave for good. Anyway, there’s a risk you’re keeping the winning ticket in the wrong hand. It’s possible that the date is off, or that you misread a key figure.

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Go Unlisted by Changing Your Address

You won’t be around to stop people holding their hands out until you win your prize. You’ll hear from individuals you haven’t spoken about in years — distant relatives, long-lost colleagues, college roommates, and also coworkers from five jobs ago — not to mention unethical financial advisors and attorneys.

Though it won’t stop the flood, lowering your profile will make it a little easier to deal with. You have to:

Shift all phone numbers shared with the immediate family to fresh, unlisted numbers as soon as possible. Although your old phone number will remain online, it will no longer function.
Owing to the large number of websites that provide freely accessible contact details for US citizens, fully delisting your address is challenging. However, you can find it more difficult to end up in a random hunt by using a post office box as the main address for all communications (including bills).
Deactivate (or better yet, delete) your social networking sites and change your email address.

Hire Experts

You’re certainly not a tax lawyer, a family law solicitor, or a certified public accountant. If you win the lottery, you’ll need to quickly align yourself with these four kinds of professionals. You’re specifically searching for:

A tax lawyer who focuses on assisting high-net-worth individuals in growing their tax liabilities while avoiding IRS penalties.
A private law or wealth planning specialist who specializes in tailoring estate planning documents such as wills, trusts, and prenuptial arrangements to the client’s specific needs. These records can also be handled electronically via Trust & Will.
A fee-based or fee-only investment planner sworn to work in the best financial interests, not theirs, and ideally of extensive money management expertise.
A CPA that assists affluent families in organizing their budgets and guiding you through what is sure to be a difficult annual tax planning phase.

If you’re not sure about the recommendations you’ve received, get a second opinion, even if you have to pay for the experts’ time by the hour. You can finally buy it.

Should You Take a One-Time Payment or an Annual Payment?

You must determine if you wish to earn the reward before you can legally accept it. There are two options: a single lump sum payment made all at once or a fixed payment (annuity) made over 20 to 30 years.

While you are not required to make this choice until winning your prize, doing so would almost definitely help with early asset management and tax preparation. Although it might seem that the annuity alternative is the better one, the math isn’t quite that easy. Until making a choice, carefully weigh the advantages and disadvantages of each alternative.

Accepting the Lump-Sum Payout

If you decide for a lump-sum bonus, you will not collect the advertised jackpot number, which is based on the assumption that the winner will choose the annuity alternative. Instead, you’ll get the jackpot’s current cash value, which may change a lot but usually amounts to around half of the advertising reward (sometimes a bit more). Calculate state-specific lump-sum and annuity payouts following taxation using AfterLotto’s bonus tool.

Advantages of a Lump-Sum Payout

Is the lump sum payment a good deal? Certainly not. The below are some of the benefits of accepting a lump sum payment:

Increasing Your Chances of Getting More of Your Winnings There’s a good risk you won’t survive to see the final annuity bonus whether you’re older or in poor health. Choose the lump sum option to practically ensure that you get all of your winnings until you pass on.
Using Compound Interest to Your Advantage. By the annuity’s scheduled end date, the miracle of compound interest could result in development well above the gap between the lump sum and total annuity payouts (though this is far from guaranteed).
Current Tax Rates Should Be Locked. A lump-sum payout is taxed by the IRS at current tax rates. If you anticipate potential income tax rates to increase, opting for the lump sum saves you from paying higher taxes in the future. If tax rates stay the same, your net tax bill for the lump sum will be higher than for the annuity as choosing the lump sum puts you in a higher income tax band.
Taking steps to reduce future risk and uncertainty. While most lottery authorities are financially sound, there’s no assurance that yours will be by the end of the annuity term.

Disadvantages of a Lump-Sum Payout

The lump-sum alternative, as appealing as all the benefits which seem, is not without its drawbacks. The following are some of the disadvantages of accepting a lump-sum payment:

Risk of Mismanagement. Your winnings may be wiped away or substantially devalued if you make poor investing choices, if they are your own or that of an inept or corrupt financial adviser. For an annuity, this is less likely (though still possible), because you won’t spend all of your winnings at once, giving you time (at least in theory) to know your lawyer isn’t behaving in your best interests.
Income that was almost guaranteed has been lost. An annuity is a form of investment that provides a near-guarantee of long-term gain. That’s a tempting opportunity for everyone, and it might help you cope with the stress of losing your day job.
Overall, the payout is lower. When you take a lump sum, you don’t get the advertised jackpot, and the net after taxation is much smaller. It’s still a substantial sum of income, though not quite as many as it should be.

Receiving the Long-Term Payout

Depending on the sponsor’s policies, the annuity option spreads the entire advertised jackpot sum for 20 to 30 years. The amount of payments varies with time, so the final payment should be the highest. Actual payouts and payout percentages differ depending on the duration of the annuity and the jackpot number.

Advantages of a Long-Term Payout

Taking out an annuity can have a number of financial advantages. Its benefits include:

Long-Term Cash Flow. Your yearly payout transforms your investments and helps you create equity for your descendants by providing near-guaranteed cash flow over a multi-decade period.
Lower Taxes are a possibility. Taking an annuity instead of a lump sum might put you in a lower marginal income tax band, depending on the amount of your payment and the income tax rates in your home state (if any). That ensures you’ll pay less tax over the course of the payout era, if not in actual terms (due to the higher average payout), than at least in percentage terms.
Checks for Excessive Spending. Taking the annuity prevents you from spending the whole prize in a matter of months or years. It is always possible to mismanage an annuity, but it takes far longer to go bankrupt. As a consequence, when you take the annuity, it’s simpler to sustain a comfortable (if not lavish) style of life on a strict schedule.

Disadvantages of a Long-Term Payout

The long-term payoff option, like most items, isn’t ideal. The following are some of the main disadvantages of taking an annuity:

Inflationary exposure. Since lottery annuities are not indexed for inflation, their worth decreases marginally per year unless there are occasional periods of deflation.
Issues Concerning Your Death. Though state laws differ, you’ll more definitely be able to name just one recipient on your lottery annuity. It may be a major issue if you have several children or descendants who will normally be entitled to an equal share of your estate.
Insolvency is a possibility. It’s technically feasible for the lottery that pays the annuity to go bankrupt without a successor in place, putting you in the lurch for those checks that haven’t been issued yet.
There is no way to claim winnings in advance. You’re stuck with it once you want to embrace the contributions as an annuity. You can come to reconsider your decision in the case of an expensive incident, such as a prolonged hospital stay not protected by insurance. Long-term treatment, for example, is a non-emergency case.

What to Do After You’ve Claimed Your Prize

After claiming your prize and selecting your compensation form, you’re ready to put your strategy into action. What it looks like depends on all of the previous plans, but everybody follows the same simple measures.

Consult With the Professionals You Hired

These experts are there to assist you, not the other way around. Expect them to do their work well, and if you don’t have faith in them, recruit new employees. For those that aren’t used to having life-changing wealth, it’s critical to have a knowledgeable, ethical team assisting you in making sound financial choices.

Pay off the Majority of Your Debts

It doesn’t matter whether you have leftover college loans, a second mortgage, credit cards, vehicle loans, or personal loans. You have no choice now that you’ve won the lottery not to pay down your loans, prioritizing the highest-interest debts if you may.

This law has one major exception. Continue to finance your main home mortgage whether it has a reduced interest rate or if you wish to upgrade to a newer house and a larger mortgage. The larger your federal tax bracket, the more money you can save by itemizing your tax deductions, which includes mortgage interest (a big deductible expense for most taxpayers who itemize).

Create an Emergency Fund

And millionaires face financial difficulties. One of the first things you can do with your winnings is to start a healthy emergency fund or contribute to an established one. Setting aside enough money to cover six months’ worth of expenditures is a reasonable rule of thumb, but keep in mind that your expenses would definitely rise as your standard of living rises (a phenomenon known as lifestyle inflation). Choose a high-yield savings account with a member of the Federal Deposit Insurance Corporation, like CIT Bank or Chime.

Make a Retirement Savings Plan

After that, put a portion of the winnings into tax-advantaged savings funds. Open a conventional individual retirement account (IRA) with a low-cost robo-advisor like Betterment or a self-directed online stock broker like You Invest through J.P. Morgan if you don’t already have one. Set up an annual contribution for the legal limit if you’re on an annuity contract. (Because IRS regulations bar higher-income people from contributing to Roth IRAs, a large lottery annuity would certainly disqualify you from contributing to that sort of account.)

Invest in a Variety of Things To Diversify the Portfolio

If you don’t even have a taxable brokerage account, open one as soon as possible and fill it with tax-advantaged alternate assets such as municipal bonds. Nontraditional properties such as fine art (Masterworks sells fractional shares), wine (via Vinovest), and cryptocurrencies are now available to invest in. However, make sure to talk to the financial adviser about the possible threats.

Organize College Funds

Set up a 529 college savings account (which can come with state income tax benefits) or a Coverdell ESA and offer the full yearly donation per year whether you have school-age children or wish to provide possibly life-changing tuition assistance for someone else’s children. Connect your CollegeBacker account to your 529 scheme to inspire friends and relatives to contribute as well.

Donate to Those Who Are Less Fortunate

Consider donating some of your good fortune to a church, a hospital, or a family member that is going through a difficult period. When you donate to a registered organization and itemize your tax deductible, you will be able to get a tax advantage.

Know When to Say No

You’ll see a ton of calls for financial assistance as news gets out that you’ve hit the jackpot. Which would be credible and convincing, while others will not. Unfortunately, you can refuse everything but the most urgent requests before you’ve completed everything else on your to-do list. Some people could steal your winnings until you know what’s going on.

It will not be easy. It’s almost certain that some people would use whatever means necessary to get you to part with your capital, including exploiting, bullying, and even intimidating you. Prepare a reason to deflect certain questions, such as the necessity to review any financial actions with your partner or a financial planner.

Final Thoughts

With so many questions and concerns, it’s easy to see why many people are reluctant to claim their winnings. But with the right information, you can make a decision that will work for you in terms of your own personal situation. The best thing to do if you win the lottery is to consult a financial adviser. They will be able to help you make decisions that are right for your individual situation and their expertise can really come in handy when it comes time to claim your prize or decide how much of your winnings you want to be paid out each year.

Here’s What To Do When You Win the Lottery