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.