You Just Won the Lottery. Now Here’s What You Do: Nothing
You never thought it would happen. Not to you. After all, you don’t usually play the lottery. Why would you? You can’t win. But this time, you figured, this time, just maybe, lady luck would find her way to you. And, boom! You bought 4, 8, 19, 27, 34, and a red 10. You just won the lottery.
JK! You’re not one of the three winners who will apparently split the biggest pot of all time. (If you are, please DM!) But Powerball dreams die hard. You’re still imagining the boat you’d buy, the debts you’d pay off, the trip around the world you’d take—for years. (Not to mention the email you’d shoot off to your colleagues to say, ‘Hasta la vista, I quit.’)
Well, dream on. Or don’t. Because, as it turns out, we found out exactly what you should do if you find yourself the recipient of a huge payout you didn’t earn. And it’s exactly none of those things on your list.
Take It Slow
First things first, don’t do anything. “You want to let the emotional dust settle and you want to give yourself some time to put a plan in place,” says Colleen Supran, a financial adviser and principal for wealth management firm Bingham Osborn & Scarborough. The key, Supran says, is not to go wild. She recommends taking some time to think about what just happened, to let the excitement wear off, and to insulate yourself from the public.
You also want to keep a low profile. Combined with the disorientation of sudden wealth, the addition of sudden fame can create a huge emotional strain.
“I would change my phone number in a heartbeat,” says Joan DiFuria, a cofounder of the Money, Meaning, and Choices Institute, a group that works with those who acquire wealth, including sudden windfalls like lottery winners.
DiFuria says that lottery winners can expect to feel demands from friends, family, and the general public. After an initial honeymoon period of excitement, she says, winners can begin to feel pressure from others to share their winnings. They can feel guilty and even suffer from low self-esteem. “People feel entitled (to your wealth) because you didn’t do anything except spend $2 on a ticket,” she says.
The best way to avoid that? Minimize your social footprint while taking stock of what you plan to do with your winnings.
“We’re not used to having to keep many things so private,” Supran says. “To insulate yourself, you may need to close your Instagram, close your Facebook, and really build in social protections, so you don’t have so much information out there until you become used to this idea that you’ve become wealthy overnight.”
Oh, and hey, use your good judgment—don’t fall for any scams online (or IRL) either.
Get Your Squad Together
While you’re deleting your social media accounts and taking stock of who your friends are, you should begin to develop a team of advisers you can trust, including an estate planning attorney, a competent accountant, an insurance agent, and a reputable financial adviser. (In fact, you may even want a few of each.)
“It’s not someone I would go to Google or the yellow pages for,” says Cari Weston, the director of taxation for the American Institute of CPAs. “You’re looking for certified people. I would start with a referral from someone I know at the golf course, at the office, or at church.”
You want to put your team together early to help you decide on how to collect your winnings (and pay your taxes). For the lottery, you can choose to take a lump sum or collect an annuity over thirty years. Either way, you’ll have to pay taxes.
You’ll also need to consider the opportunity cost of not-taking the lump sum versus the risk of taking it all and blowing it. You know yourself best.
“Believe it or not, even with a billion dollars, it gets spent,” DiFuria says, warning of past lottery winners who have blown their fortunes.
Once you have a dream team you can begin to figure out what it is you really want—and what you value in your life. “Now you’re in a position where you don’t have to work, so what gives you meaning and purpose?” DiFuria says. “If it’s just spending money, you’re going to lose the money.”
That’s why, Supran say, it’s worth taking some time—a year, in fact—to let the excitement of your big windfall wear down to figure out if you want to invest your money and live off the dividends; start a charitable foundation; or become, say, a real-estate baron. (Or, some combination of all three.)
Live Your Life
Regardless, everything you do will have tax implications, and your advisers will be the ones who can help ensure that you plot out the impact of your craziest choices as well as help you give smartly to your friends, family, and community. “Everyone you know is going to come out of the woodwork, but there are tax implications to giving people money,” Weston says. “The IRS lets you gift to a person $14,000.” So you could give each person in your family, if you wanted, $14,000 each year (as could your spouse), she says, without having to pay any additional taxes on that money.
“The attorney can also help you set up trusts depending on what your personal values are,” Weston adds, so you could have investments set aside for, say, your children, your future, or to capitalize on charitable deductions since, hey, you’re a rich person now.
So, to all the dreamers out there, don’t worry! Winning the lottery, and doing it right, is actually pretty boring. Sure, you might one day buy a house in Hawaii or a yacht in the Caribbean, but look at all the work you’ll have to do first. For the rest of us, we’ll always have our dreams. And that’s pretty much free.
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