Recently, the Mega Millions jackpot became the third largest jackpot in the history of the game with the winning prize at $548,000,000. The Powerball and Mega Millions combined was almost $1,000,000,000! That is a jackpot which will permanently change lives, and it is the largest Mega Millions prize since 2013 when $648,000,000 was split between two winners in California and Georgia. Yes, Georgia! The record jackpot happened in 2012 and was split between three winners. Whether you win the lottery, get an inheritance, or receive a windfall, there are important steps you need to know to make sure you plan your finances correctly. With the jackpot being so high, here are my tips what to do if you win the lottery.
- Make sure to sign your ticket– The last thing in the world you want to do is to lose or misplace the winning ticket. You should sign the back of the ticket and then make a couple of copies that you can store in a safe place. This is the ticket you will need to bring forward to claim your prize.
- Don’t start a parade– This is the one time in your life where you need to keep a secret an actual ‘secret’. Once you come forward or it leaks out that you have the winning ticket, you will completely lose any level of anonymity that you may have. You typically have a grace period of time to come forward with the ticket, so if you don’t show up to claim your prize tomorrow or next week they won’t take the prize away from you. If you open your front door and say, “I just won $548,000,000!” then plan to have every person who was never really your friend knock on your door asking for a handout.
- Get your team in place– You may not want to collect the prize in your own name, but instead think about setting up something like a revocable living trust and then having that entity claim the prize. There are many reasons to do this, but most importantly you want to think about how to manage your privacy. Make sure you have a quality financial advisor, CPA, and attorney who can work in concert to plan thoughtfully around your entire situation, goals, and future.
- Tax now or tax along the way– One of the big decisions will be whether you should take the lump sum and pay all of the taxes now or you should take installments over the next 20 years. This is a challenging decision because either way you’ll be in the largest tax bracket, but you have to consider the time value of money, your own controls over spending money, and your overall goals as a whole. This is a crucial time to build a high-quality financial plan, your overall estate plan, and your beneficiary designations should something happen to you. One other consideration is thinking about the state that you live in- certain states including Florida, Tennessee, and Texas have no state taxes, but if you live in California you could lose more than 10% of your winnings to state taxes.
- Don’t follow past history of winners gone bad– Money is a powerful thing, but it won’t buy you happiness. There have been many sad stories in the past about winners who instantaneously became millionaires and within a short period of time blew their whole fortune. Be wary of relatives or friends who come out of the woodwork asking for money who have not spoken to you in years. Most of all, do not invest in any type of private investments for at least a year. You will have people that pitch you on opening up restaurants, investing in movie deals, and technology that is sure to change the world. This is one of those times it may actually be able to sit tight on cash for a year until you really make a plan.
- Take a deep breath, relax, and continue on with life.- With the odds being 1 in 300,000,000 of winning, this truly is something that will happen once in a lifetime. The worst thing in the world to do is to completely change your routine and who you are as a person. Think about the things you do that make you happy. Consider the charities that you have always wanted to help. Perhaps even think about just one purchase of something you always wanted. Most of all, relax and breathe because this is a special moment.
If you win the lottery (or just get an inheritance or windfall), the first move you need to make is e-mail me at firstname.lastname@example.org. Then, we will make a plan for your financial future.
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
CEO and Founder oXYGen Financial, Inc.
Ted Jenkin is a frequent guest columnist for the Wall Street Journal and Headline News Weekend Express. He is the co-CEO of oXYGen Financial. You can follow him on LinkedIn @ www.linkedin.com/in/theceoadvisor or on Twitter @tedjenkin.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.