5 Things to Do Immediately After You Win the Lottery
What would you do if you purchased a lottery ticket on a whim at your local gas station when you were stocking up on fuel and Cheetos, went along on your merry way, and the next day came into a windfall of millions — or billions — of dollars? It’s happened before to some very lucky people, and the most recent jackpot could once again set someone up for life.
Lottery fever may have gripped the nation, but chances are you won’t be taking home the big prize. When it comes to big jackpots, your odds of winning are often 1 in several million. You’re more likely to be struck by lighting, bit by a shark, or killed in an asteroid strike than to become a lottery billionaire overnight.
If by some miracle you do end up holding a winning ticket, don’t rush out to buy a new car or book a round-the-world cruise right away. Managing huge lottery winnings or other windfalls requires significant financial savvy. Make a wrong move, and you could find yourself in a worse financial position than you were to begin with. To protect yourself, here are five things you should do to if you win the lottery.
1. Guard your ticket with your life
You won’t get your winnings without your ticket. If you win big, sign the back of the ticket right away. Then, store it in a secure place (like a safe deposit box) until you decide on your next move.
Guarding your ticket is essential, because if someone else gets their hands on it, they can present it to the lottery office and claim the money. You may also want to make a copy of the winning slip of paper or take a photo of yourself with the ticket to further protect yourself.
2. Keep your mouth shut
Initial screams of joy after finding out you’re suddenly rich are understandable, but resist the urge to broadcast your good fortune. Letting all your friends and relatives know you’re a newly minted billionaire is a recipe for stress, as people show up at your door with their hands out before you even receive the big payout.
Once you claim your winnings, remain anonymous if possible. Some states will let you keep your identity under wraps or claim the winnings through an LLC or a trust. Other force you to go public. The latter situation can be a big problem for lottery winners.
“We’ve seen everything from robberies to even murders of people who have won lotteries,” Alexa von Tobel of LearnVest told ABC News. “A lot of your social dynamics around you change if people are aware of your status.”
3. Don’t quit your day job
Tempting as it may be to call your boss and let him know you won’t be coming in to work again, ever, you’re probably better off carrying on as normal for now. Quitting your job and going on a spending spree could well be the first step to squandering your winnings. You need time to settle in to the idea of your new wealth and figure out what happens next in your life, whether it’s devoting your energy to volunteer work, starting a business, or sitting down to write your novel.
“Do not make significant decisions in your life quickly, especially ones involving substantial resources,” Michael Kosnitzky, a lawyer with Boies, Schiller & Flexner who specializes in taxes and high-wealth clients, told USA Today.
4. Put together a financial team
Managing a lot of money isn’t easy. Just ask the 70% of lottery winners who end up bankrupt, according to the National Endowment for Financial Education. You can avoid becoming a member of that unlucky club by assembling a team of financial experts before you even get your first check.
A financial adviser who has experience helping people who received windfalls can advise you on taking the a lump sum payment (about $930 million before taxes for the current Powerball jackpot) vs. a 30-year annuity. They can also help you invest your winnings and create a financial plan so you don’t burn through all your cash. An accountant will help you manage taxes and a lawyer will help navigate any legal issues, like setting up trusts or updating your will.
When putting together your team, don’t just hire the first person you find on Google. Interview people and assess their credentials, and watch out for so-called professionals who are really scam artists. You have between 3 months and a year to present your winning ticket, so take your time.
“Don’t be in a hurry,” Charlie Smith, chief investment officer at Fort Pitt Capital Group, told the Pittsburgh Tribune-Review. “If the process takes a couple of months, the state is still going to be there with your check at some point.”
5. Don’t forget about taxes
When is $1.5 billion not really $1.5 billion? When you’re a lottery winner. If the Powerball winner opts for a lump sum payment of $930 million, they’ll actually take home about $560 million. The missing money is the federal government’s 39.6% share of the take. But here’s the rub: Only 25% of your winnings are actually withheld, meaning the big winner will need to pony up the difference – about $126.7 million for the lump-sum payment – come the following tax year. If you select the annuity option, taxes are paid as each installment is distributed.
State and local taxes take another bite. Expect to lose another 11% if you live in Massachusetts and 12.7% if you live in New York City. (Consider yourself extra lucky if you reside in a state without income tax.) Generous gifts to family and friends could trigger the gift tax. Given how complicated the tax issues can be, hiring a skilled accountant is must.
“People like the idea of winning, and they don’t like the idea of paying the tax,” Susan Bradley, the founder of the Sudden Money Institute, told CNBC. “My general feeling on that is, get a good accountant, pay all the tax and be done with it.”