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Business Feb 07, 2022
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By SAMUEL B. LEDWITZ
With several recent Power Ball and Mega Millions jackpots worth more than $300 million, it might be interesting to know what to do just in case your luck ever pays off in an extremely big way.
And since the amount of money up for grabs is unfathomable to most, it is safe to say probably 99 percent of the public has no idea on what steps to initially take to ensure the money is properly invested, kept out of the hands of the wrong people and just not squandered.
I recently thought the same thing and came up with a comprehensive guide of what to do if you find yourself in the winner’s seat, everything ranging from what to actually do with the winning ticket to how to prepare to pay income tax from the winnings to what could possibly go wrong.
So, here’s what should be done first. You need to sign the back of the ticket to ensure you are the owner of the ticket. And the fine folks at the lottery are going to want to make your good fortune to the rest of the world. I can’t stress this enough: You want to do the least amount of public interaction that is legally required.
This is because there are scam artists out there who already have you at a disadvantage the moment you win the lottery. A legal search of public records that only takes a few minutes and people can learn more about you than you think, possibly using this information to gain an inroad with you to get to your newly found wealth.
In addition, they will go on social media and they will find a picture of you, your family, your pets and learn everything there is to know about you.
Before you claim your prize, you will want to obtain a new phone number, obtain private security for you and your family, find a safe place to live for the moment (not your current place of residence where every scam artist and reporter will be), hire a seasoned lawyer, prepare a place to transfer the money, hire a certified public account, banker, financial planner and other professionals.
This is all because privacy is the main asset that you can have.
One more note: Always do a license check on your advisors. Before you hire a professional, always look up their record with the California state agency that is involved to see if they have any complaints against the advisor.
So, what can you expect when you come forward and claim your prize? First, the lottery folks are very nice and professional. Of course, they will congratulate you and make you feel comfortable. They will ask you the story of how you came to have the ticket, how you paid for it, the store that you bought if from, your identification and your Social Security Number.
The California lottery has a police department and their people are called “Lottery Investigators.” They will check to see if you have any outstanding taxes, child support payments, outstanding warrants for your arrest, etc. They will check to see if the ticket is real and that you obtained it legally.
You have one year in California to collect the big prize from Mega Millions and Power Ball. Do not be late in collecting your winnings because you will lose your money. The unclaimed winnings will go to the California Department of Education. This has happened several times to lottery winners.
And the next thing to do is simple: keep the ticket safe. Make several copies of the winning ticket and only take the copies around to your professionals’ offices . I would highly suggest that you put the winning ticket in a safe deposit box before you claim the prize.
As time passes and you have time to focus, you will need to draw up estate planning documents, such as a living trust, to ensure the smoothly inheritance of your winnings and also to make sure that you reduce your taxes, eliminate the need for court proceedings such as conservatorships and probate, and to make sure your heirs receive the money at the right times in their life after you die.
As an estate planning attorney, I can safely say that love and money are not the same thing. Would you give your child millions of dollars when they are too young to handle it and you know it will destroy their life? In short, there needs to be a plan in place that will effectively pass the winnings to your heirs when you die, but without ruining their lives.
What about taxes? Are lottery winnings subject to income tax? And, if so, how much and at what rate?
Income is defined as “all income from whatever source derived…” by Congress in Section 61(a) of the Internal Revenue Code. It is long established that winning the lottery is income. Please do not think that winning the lottery is tax free. Instead, you should think of it as very taxable and then some.
How much does that mean? Well, actually a lot. Between federal and state income tax rates expect to pay at least 50 percent in taxes, if not more. A basic rule for taking into account the present value of the prize you won and the impact of federal and California taxes is to divide the stated winning amount by three and that is roughly the amount that you will be taking home.
Winning the lottery is a dream held by many that only happens to a very, very few. But if it does happen to you, make sure you are properly armed with the knowledge of how to best navigate these unchartered waters of this once-in-a-lifetime event.
If you would like to discuss any aspect of a proper Estate Plan, please phone The Law Firm of Bezaire, Ledwitz & Associates at (626) 398-0100 or log onto www.SmartEstatePlans.com.
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