So You Won the Lottery—Now What?

Mar 5, 2024 | Estates Planning and Asset Protection

So you’re holding the golden, one-in-a-million lottery ticket that just turned your daydreams into an unbelievable reality. Mansions, luxury cars, exclusive spa vacations, ditching your day job—everything you’ve ever wanted is now at your fingertips.

But as the excitement dies down and you realize you’ve got more money than you’ve ever even imagined, one question remains: What do you do now? 

Consider four steps to take after winning the lottery to plan strategically, safeguard your newfound wealth, and positively impact your life and the lives of your loved ones for generations to come.

1. Sign the ticket immediately

First, you need to sign your lottery ticket as soon as possible. 

A lottery ticket is a bearer instrument, meaning whoever holds the ticket is presumed to be the owner. Immediately signing the ticket establishes undeniable proof of ownership, protecting your claim against any disputes or attempts to cash in on your windfall.

After signing your ticket, keep it safe by storing it in a secure location—such as a safe deposit box or a locked safe—until you’re ready to claim your prize. (And to protect your privacy and peace of mind, don’t tell a soul that you’ve won.)

2. Claim your prize before the deadline

The timeline for claiming your lottery winnings varies significantly from state to state, so it’s important to look up the laws around lottery jackpots where you live. For example, winners in Texas have up to 180 days from the draw date to claim their prize. In contrast, states like Florida only allow winners up to 90 days for certain lottery games. 

An experienced attorney can be a great resource for accurate information, thanks to their deep knowledge of local laws. They can ensure you claim your money within the legal timeline and help you create strategic plans for making the most of your earnings.

3. Decide how you want to receive your payout

After signing your winning ticket, the next step is to choose how to receive your lottery winnings. There are two options to choose from: a lump sum or an annuity.

Lump sum

A lump sum means you receive all your winnings at once, after taxes. 

This option is great if you’re looking to make significant investments, settle debts all at once, or start a major project immediately. However, it’s worth noting that the lump sum amount is often much less than the total advertised jackpot because it reflects the current cash value of the prize pool. 

Annuity

Choosing an annuity spreads your winnings into annual payments over a period, typically 20 to 30 years. 

The benefits of an annuity are that you can enjoy a steady income stream and avoid spending your money too quickly. However, you can’t use your funds all at once for major purchases like you would with a lump sum. 

Additionally, while the value of your annuity payments can vary significantly from state to state, the lump sum typically gives you a bigger total amount. Since an annuity spreads your winnings over many years, it doesn’t capitalize on immediate investment opportunities that could yield higher returns. When coupled with inflation over time, the cumulative value of these payments tends to be less than what you could achieve by taking the lump sum and investing it wisely from the start.

How to choose the best payout

Choosing between a lump sum and annuity payout requires careful consideration of your current financial situation, long-term goals, and the tax implications of each option. Consulting with a local financial advisor and an estate planning attorney can provide you with tailored advice that aligns with state law and your personal and financial aspirations.

4. Assemble a team of professionals

Next, your top priority should be getting a team of financial and legal experts together. They can help you manage your money wisely, navigate any legal issues, and set your finances and assets up for long-term protection and growth. 

This team often includes an estate planning attorney, a financial advisor, and  a certified public accountant (CPA). 

Estate planning attorney

An estate planning attorney is instrumental in navigating the complex legal issues that accompany a lottery win. In some states, they can advise on the possibility of claiming your winnings through a trust or a limited liability company (LLC) to protect your identity and maintain privacy. This keeps your newfound wealth under wraps and provides a layer of protection from potential claims and litigation that can arise when the public finds out about your win.

Beyond those immediate concerns, an estate planning attorney can also help you structure your assets for long-term security and growth. They’ll work with you to draft or update your will so that your assets are distributed according to your wishes in the event of your passing. 

Just as importantly, they can help you set up various forms of trusts, which serve multiple purposes:

  • Asset protection
  • Protect you from yourself (overspending or over-gifting)
  • Avoiding the lengthy and costly probate process
  • Minimizing estate taxes
  • Providing for your loved ones according to your wishes

They may also help you identify options for charitable giving if there are special causes or organizations close to your heart. In this way, they leverage their expertise to help you manage your newfound wealth in a way that aligns with your personal values, family needs, and long-term goals. 

Financial advisor

A financial advisor—especially one who acts as a fiduciary—ensures that your lottery winnings are managed with your best interests at heart. Fiduciaries are ethically bound to act in your best interests instead of the bank’s. 

They can help you by:

  • Developing a comprehensive investment strategy that aligns with your financial goals, risk tolerance, and time horizon
  • Diversifying your investment portfolio to mitigate risk and ensure steady growth
  • Providing advice on wealth preservation techniques

CPA

Lottery winnings often get taxed at the top federal rate, and you may also have to pay income tax since 43 states consider lottery winnings ordinary income.

A CPA has the expertise to help you understand the federal and state financial liabilities associated with your winnings, whether you choose a lump sum or an annuity payout. They can devise strategies to minimize your tax burden, such as:

  • Making charitable donations
  • Setting up tax-advantaged investment accounts
  • Timing the receipt of your winnings to spread the impact over multiple years

They can also assist with the complexities of gift taxes should you decide to share your money with family and friends. With a CPA, you can have peace of mind knowing you’re complying with tax regulations while optimizing your financial situation, which allows you to keep more of your winnings and reduce your overall tax liability.

Retirement planner

Retirement planners specialize in creating strategies for your winnings to support a fulfilling retirement lifestyle, considering factors such as longevity, healthcare needs, and inflation. 

They can help you maximize your retirement accounts, such as IRAs and 401(k)s. They can also assist you in exploring other investment opportunities that provide long-term growth and stability so you can enjoy your later years without financial worry.

Protect your future with an experienced attorney

Winning the lottery can be a thrilling yet overwhelming occasion. An experienced attorney can help you navigate all the complexities that accompany it with peace of mind and confidence. 

At the law firm of Shann M. Chaudhry Esq., Attorney at Law PLLC, we’re dedicated to using legal strategy, advocacy, and planning to help you protect and preserve the things that matter to you—and help you pass them down to the next generation. If you have questions about winning the lottery, contact our offices to schedule a consultation. We’re here to help!

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