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What Financial Advisors Can Do for Lottery Winners

SmartAsset: What Financial Advisors Can Do for Lottery Winners

Winning a substantial sum in a state lottery unquestionably can increase a person’s independence, financially and otherwise. However, going it completely alone is rarely the wisest move after drawing a winning ticket for a large prize. Few people of ordinary means are equipped to deal confidently with questions of safety, publicity, taxes, philanthropy or more that can accompany monetary windfalls. To many professionals in the financial, legal and accounting fields, however, these scenarios are routine and they can have ready solutions to help. If you find yourself with a lucky lottery ticket, a good first move is to talk to a financial advisor who can help you evaluate the options.

How Winning the Lottery Can Create Problems

Plucking a lucky ticket in a state lottery can solve many problems but, especially if it’s large enough, it may also present new problems. Many of these concerns are well outside the experience of the average person. Some examples include not knowing how to prepare to receive that amount of cash or dealing with family members who all of a sudden are asking for you to invest in them or their business idea.

Thankfully, financial advisors, especially those who specialize in managing windfalls, help clients deal with receiving large windfalls on a regular basis. It doesn’t matter whether you’re receiving money from the lottery or a large inheritance, the financial advisor can help you navigate what to do and how to overcome the new problems that receiving this much money suddenly can bring. 

How a Financial Advisor Can Help Lottery Winners Right Away

There are a number of things that you may want to do if you happen to win the lottery, but when reality sets in there may be problems to deal with immediately. There are things you should think through first in order to set yourself up for success as you start to collect on the lottery winnings. Here are some of the first issues that financial advisors can help:

  • What to do first: Even if you’ve spent much time fantasizing about what you’d do after winning the lottery when it actually happens your first move may be far from clear. Here a financial advisor experienced at helping with sudden windfalls can provide much-needed clarity on the options, as well as make recommendations for your plan about what to do now and later on.
  • Timing and communication: Keeping the valuable ticket is an immediate and overriding concern. A financial advisor can suggest placing it immediately in a bank safety deposit box. After that, silence may be the best move. Telling no one about the win will avoid requests from family, friends and strangers for loans and gifts and possibly unwise investment schemes. There is no need to rush. Lottery winners have six months to collect winnings, during which the winner can work with the advisor to develop a plan.

How Financial Advisors Can Help Lottery Winners Long-Term

SmartAsset: What Financial Advisors Can Do for Lottery Winners

Once the winning ticket has been verified, it’s important to then start establishing your finances and setting them up for success after you have received the money. The last thing a lottery winner wants is to not be prepared when the money starts flowing in. This includes knowing where to deposit the money as well as how to set you up for success in investing and deciding what you’re going to spend.

Here are the long-term things a financial advisor can do to help a lottery winner:

  • Assembling a team: A lottery win of life-changing proportions calls for a team of experts. In addition to the financial advisor, a lottery winner often hires an attorney and an accountant. The attorney is needed for matters such as preparing a trust to protect the winnings from publicity, while the accountant can mitigate the inevitable tax bite. The financial advisor’s role is to assess your financial goals and prepare an investment plan that will help accomplish them.
  • Maintaining anonymity: Many states let winners claim prizes without revealing their identities. That can be invaluable for avoiding important requests for funds. Setting up a blind trust with the help of an attorney and placing the lottery ticket within it can keep your name completely out of it.
  • Choosing lump sum or annuity: This decision will draw on the expertise of the financial advisor as well as the accountant. Taking the lump sum allows for more flexibility and, potentially, greater investment gains than receiving winnings in annual payments. However, choosing the annuity payout may be better for smaller wins and younger winners and also could reduce overall tax liability.
  • Managing taxes: Federal and, in most jurisdictions, state income taxes consume big chunks of lottery winnings. Financial advisors can help devise strategies such as charitable gifts that keep this to a minimum. For instance, making a large contribution to a donor-advised fund or private foundation can reduce the first-year tax bite while giving time to decide what charities will benefit.
  • Handling requests: One of the most challenging aspects of sudden wealth can be coping with requests for gifts, loans and investments from friends, family and outright strangers. A financial advisor can suggest practices to manage this, such as offering loved ones one-time gifts up to the limit for avoiding federal gift taxes. An advisor can also investigate investment opportunities to ensure they are legitimate and above board and match your objectives and profile as an investor.
  • Investing wisely: Even a very large win can be eventually lost through mismanagement and poor decisions. A financial advisor can help you avoid this tragedy. He or she will usually start by discussing your spending goals and investment objectives. Then they’ll help you prepare a plan for achieving them with the help of time-tested investment vehicles and strategies. Finally, they’ll assist you with managing your investments so the life-changing impact of a lottery win is more than temporary.

The Bottom Line

SmartAsset: What Financial Advisors Can Do for Lottery Winners

Winning a lottery can solve some problems while bringing many new ones. A financial advisor can answer a winner’s questions about keeping a winning ticket safe, assembling a team of experts, maintaining anonymity, opting for a lump sum or annual payout, minimizing taxes, supporting loved ones and charities, avoiding shady investment schemes and preparing a long-term investment and financial plan to make the most of the unexpected bounty.

Tips for Investing Windfalls

  • When you’re looking for a financial advisor to help you decide what to do with any sudden windfall, interview a few to find one with appropriate qualifications and experience. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Restraining the urge to splurge often is part of responding wisely to a lottery win. However, it may not be necessary or even wise to completely suppress these impulses. Many financial advisors suggest taking a modest portion of your winnings, perhaps 5% of the total, and splurging on whatever your heart desires, with little or no thought as to whether or not it’s a financially wise move. The idea is that a small binge may satisfy the desire to behave as if money is no object and help avoid a possibly disastrous major spending spree and you can still establish a nice retirement income.

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