What is more fun than imagining everything you can do with lottery winnings? Obviously winning the lottery and having that sudden inflow of cash would make life pretty exciting! If you were to win, suddenly managing money can be complicated especially with your friends and relatives asking for loans or gifts. Before we go through the steps of keeping your winnings confidential, first you need to sign and secure the winning ticket in a safe or lockbox.
Lawyers, Accountants, Planners and More
Each lottery has a deadline for when you must claim your prize, so time is on your side before you go on a spending spree. Before you rush straight to the lottery office, hire a few advisors such as an attorney, accountant, trust officer, etc. to learn about your options and what may be best in your situation. A trust officer can assist in the decision between taking the annuity payment option or taking a lump-sum payment, which will have tax and estate planning consequences this professional and an accountant can offer insight. A lawyer knowledgeable with estate planning can help draft paperwork for a lottery trust, where you can hire a trustee to help manage your winnings at your direction.
Why Might You Like a Lottery Trust? Anonymity, Avoiding Costs, or Expertise
When your winning numbers come in, it is time to be prepared. If your state gives out the names of lottery winners (as does Illinois), you are advised to stay out of the public eye as long as possible, or at least until you have a way to protect your money. While lottery winners can be found to be as unlucky as they are lucky with people asking for money or complexities that come with excessive wealth, the natural preference is to remain anonymous. While this is not easy, a lottery trust can be of great assistance.
Establishing a lottery trust can be done through a blind trust, revocable trust, or some other legal entity which can help avoid potential problems. While drawing up a trust, you must appoint a trustee who is the person responsible for managing the assets and making payments to beneficiaries and the IRS as instructed in the document. You can serve as the trustee, or you can have a professional, such as a trust department in a bank, carry this out. A professional will help protect your privacy as well as give additional insight and expertise. The main goal for setting up a separate trust or entity is to keep funds separate and conflicts to a minimum. While not everyone will need or want a new trust to manage their winnings, here are a few options you can think through:
In all but a few states, the law prohibits lottery winners from remaining anonymous. If you win big, long lost relatives may come asking for a loan of some type, or friends may ask for a small gift. If you establish a blind trust to claim the winnings, no one will know of your winnings unless you tell them. A blind trust is one where you are not involved in the day-to-day management or decisions. You gift your winning ticket to the trust, the trust then claims the winnings and invests the funds, without your input, in the most appropriate way possible. Since the winner isn’t involved in the decisions or investment management, it is best to appoint someone knowledgeable enough to handle these. This trust will keep everything confidential, and your attorney will tell you if a blind trust is an option in your state.
Also known as a living trust, placing funds into this type of trust will help the assets avoid probate when the lottery winner passes away. The trust is a separate entity, which the winner is still in control, which helps keeps funds separate. These trusts typically have the winners name and social security attached, so it is advisable to think through what a name could be along with applying for a separate Employer Identification number when creating this trust.
If you won the lottery along with some co-workers or other individuals, some other sort of entity might be in order, rather than a revocable trust. Depending on the rules of the particular lottery, only one entity may be eligible for the winnings. This may take the form of a general partnership, limited liability corporation, or a revocable or irrevocable trust. Unlike a revocable trust, the terms of an irrevocable trust cannot be changed, which makes sense if there are several parties involved. Irrevocable trusts allow the funds to be dispersed to each of the winners in the pool without having to simply rely on a single winner's honesty (while avoiding the tax consequences of transferring the winnings to multiple parties). And since it may not be revoked or altered, it helps prevent future disputes among the parties.
First National Bank and Trust can help with all aspects of life, from buying your first home to managing your lottery winnings. Consider us to be a trusted resource for you and your family. The peace of mind that comes from having a one-stop-shop for all things financial planning is priceless.
Matt Riley was named Fiduciary Officer and VP for First National Bank and Trust Company in December 2018, helping clients to meet their prosperity goals through investment and estate planning. Prior to joining FNBT, Matt had risk and compliance analysis experience at State Farm Bank in Bloomington, Ill. Matt is a proud Illinois State University Alumni, receiving his B.S. in Finance with an emphasis in Financial Planning. He has continued his education journey, earning other designations including the Chartered Financial Consultant designation. In addition to his bank service, Matt became a member of the Clinton Rotary Club in April of 2019 and became a board member for the Warner Hospital & Health Services Foundation in May of 2019.
About First National Bank and Trust Co: First National Bank & Trust Company is a community bank located in Clinton, Illinois. Dedicated to community prosperity, the bank was chartered in 1872 under the name DeWitt County National Bank. The name was changed First National Bank and Trust Company in 1974, and was acquired by TS Banking Group in 2017. With $186 million in assets, First National Bank is dedicated to community reinvestment and gives 10% of its net income back to the community. For more information visit firstnbtc.com.
*Investment products are: Not a Deposit, Not FDIC Insured, Not Insured by any Federal Government Agency, Not Guaranteed by the Bank, May Go Down in Value