12 things not to do if you win the lottery
many people dream of winning the lottery. (Photo: Thinkstock)
Is the lottery the new American dream? Imagine becoming vastly wealthy overnight. Being a winner of a multimillion dollar lottery certainly will be a life-changing event for almost every single lottery winner. But what about when the prize is an astronomical sum of $100 million, $200 million or $300 million? Various Powerball and state lotteries have reached vast sums, and lotteries elsewhere have as well.
Future Powerball and state lottery ticket winners will become incredibly wealthy in an instant. Imagine being Joe Somebody and turning into Sir Joe the Magnificent overnight. Now imagine the unthinkable, where Sir Joe becomes Joe the Village Idiot in a very short time. Supposedly most lottery winners end up broke again. That just doesn’t seem right at all.
24/7 Wall St. wants its readers, particularly those few who are lucky enough to win the lottery, to avoid some of the simple and complex mistakes that have taken other lottery winners into bankruptcy. Some lottery winners have even died.
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24/7 Wall St. has decided to offer 12 important things not to do if you are a lottery winner. We have looked around at many research papers and other articles on the matter about those who land in instant riches against all odds. Doesn’t it seem cruel to imagine that many lottery winners become losers? There is a saying that newly wealthy people need to commit to memory: you should only have to get rich once. The reality is that some people just cannot help themselves in avoiding the pitfalls of instant wealth.
2015 may not have broken the record books on the highest lottery winnings in America. Still, there was a $310 million winner from the Powerball lottery in Michigan. In February of 2015, the Powerball drawing with a $564.1 million jackpot there were three different winners who got to split this top prize. New York’s March lottery drawing brought a jackpot worth $136 million. There have been other U.S. lotteries in years past with jackpots north of $500 million, and as mentioned a year-end lottery is up for grabs with a Powerball jackpot of $300 million and a Mega Millions jackpot of $117 million.
While many lists explain what you should do if you win, it is surprising how few actual warnings are out there that can be used a scare-tactic guide that makes lottery winners do the right thing. Did you know that you might become a marked target if you are a lotto winner? Some people find instant enemies, and some people become their own worst enemy. It might have been very hard to spend $30 million in 30 days in “Brewster’s Millions” during the mid-1980s, but spending $10 million, $50 million or even $100 million can now be done faster than you can imagine. Some people now could even manage to spend that much just in a single day or two.
Some points about what to do, or not do, may overlap or seem redundant. The problem is that there are many pitfalls that snag lottery winners who become vastly wealthy overnight or those who find themselves incredibly wealthy in a very short period. This list of tasks also has many lessons for those who win big legal judgments, who unexpectedly inherit millions of dollars and who get sudden windfalls of cash from a business deal or a business sale.
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Here are 12 things not to do if you win the lottery … or 13 things if the runner-up counts!
Forget to sign a ticket, or forget to report it to the state.
After doing some research, we find this is apparently the simplest and easiest error to make. Can you imagine losing a lottery ticket? Then imagine what can happen if someone else snags your ticket and shows up to collect the prize. Fighting over this is no simple task, and disputes have arisen over who owns what ticket. In a way, lottery tickets are almost considered the last form of bearer bonds that anyone can collect on if they show up with the coupons and bonds. Lottery tickets expire at different times from state to state, but they generally expire in 90 days to one year.
Tell everyone you know.
If you win millions of dollars, chances are pretty high that you will to want to brag about it and share some of your new joy. How could you not? The problem is that telling everyone you know before you collect your winning puts you in danger, and in more ways that just one. Everyone who has ever done anything for you now may come with their hands out asking for something, or worse. You probably have heard of kidnap and ransom insurance before. One lottery winner was even murdered. If you can manage it, and if your state allows it, try to remain anonymous for as long as humanly possible. How you became vastly wealthy will be found out in time anyway, but there is no need to alert everyone.
Automatically decide to take the up-front cash instead of the annuity.
Getting tens of millions of dollars at once probably sounds better than getting a paycheck for the next 30 years or so. Now consider that close to 70% of lottery winners end up broke, many within a couple or few years. Let’s say that you can choose to get $172 million up front, or you can choose to receive a payout of $300 million slowly over the course of a lifetime. Most people choose the lump sum rather than the annuity payment as it is instant empire-making money. Go see a reputable and visible tax professional and a reputable investment advisor at a top money management firm with a widely recognized company name and a long corporate history. This theme of “reputable and visible” will echo throughout. Do this before you make the decision about a lump-sum or annuity option.
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Think that you are the smartest person to manage your money and finances.
If you go from living paycheck to paycheck, does it sound right that you will know the best things to invest in and the best tax and asset protection strategies? There are many ways to invest and protect that fortune, and that might not include just buying some stocks and bonds and letting it ride. Your drinking buddy might also not be the best choice as an advisor and expert. Having a solid and respectable team of advisors and managers in place will act as your buffer that protects your assets now and in the future. Also, don’t think that this money is a tax-free payment as you probably will have to pay the top tax bracket to the IRS and the highest state and local income taxes. Do you know how to protect your assets against all threats and know exactly how to protect your estate in case you die or become incapacitated? Here is a hint: If you answered yes, you probably did not bother playing the lottery.
Let your debts remain in place.
If you get the “I’m rich and don’t have to pay anymore” bug, you might be dooming yourself. One lottery winner in California was strapped with debt from property purchases and what seemed to be excessive insurance policies. Whether you take the lump-sum or the annuity option, if you have a single penny of debt in the immediate future and distant future, then something is seriously wrong. For that matter, you should not have a single debt ever again. If you manage to go broke down the road and still have a mortgage, car payments, student loans, credit card debt and personal bills, you will have lost the right to be mad when all of your friends and family members ridicule you every day for the rest of your life.
Become the excessive high-roller, living the Big Life.
If you go from living a simple life to instantly being able to spend hundreds of thousands of dollars (or more) per week, what do you think happens to your expectations in life ahead? Chances are high that you will want more of the same. If you start gambling in Las Vegas and are not happy until you are gambling with hundreds of thousands of dollars (or more) per play, you are dooming yourself. Wait until the real con men find you. Taking you and your favorite 50 people on a luxury cruise around the world can become very expensive, very fast. Having an entourage generally only works for people who keep making more money, and entourages have bankrupted many musicians and athletes.
Buy everything for everyone, or even for yourself.
Do not go out and buy dozens of cars, followed by houses and whatever else, for you and your friends and family members. This will start you on a bad path, and you could easily become the next friends and family personal welfare department. If you start buying everything for everyone, chances are high that they might expect that to last forever. The other end of the story is that you do not have to be a cheapskate either. Still, after hearing a real life personal story of one lucky winner buying more than 30 cars and multiple houses in three months, it is just crazy.
Say to hell with a budget.
Maybe it sounds crazy that you have to live within means when you get empire-making money. After all, most lottery winners are instantly wealthier than everyone they know combined. This also goes back to having advisors and being prudent, but at the end of the day you do still have a finite sum of money. Chances are very high that you will make some serious purchases and your lifestyle will be changed forever. Without setting limits for yourself and for what you do with others is a recipe for disaster. Again, many lottery winners go broke. If they went broke in a very short period, what do you think the reflection about wishing for a proper budget would be?
Become the business backer for all your friends and family.
One common theme that has come up with lottery winners (and judgment winners) who suddenly get vast sums of cash is that their friends and family start pitching them on endless business ideas. Sure, some will sound great and some will sound crazy. If someone has no knowledge of a particular business and does not know what it takes to actually run a business, will that person do better because a lottery winner who lucked into vast wealth provided money to start it? If your answer is yes, you seriously need to protect yourself (from yourself).
Give away the whole enchilada.
This is probably not the case for most lottery players, but some people might want to give away just about all their money to a charity or to a religious institution. You can be more than generous without doing the unthinkable. Imagine what you will feel like down the road when a serious crisis arises in your life or your family’s life, knowing that you no longer had the means to change it. Should you be charitable? Absolutely! Should you give it all away just because a church or a charitable group does good things? Absolutely not, at least not while you are alive! If you insist on giving it all away, structure your will and estate to give it all away upon your death.
Get celebrity and athlete envy.
Keeping up with the Jonses is bad enough, but definitely do not try to keep up with the Kardashians or other celebrities. It may seem cool to own a 200-foot yacht. It may seem practical that certain celebrities have an entourage, or to have a film crew following you around. It may seem cool owning castles in Europe. Owning an original Picasso painting sure sounds impressive. Having a big new private jet makes sense for a lot of people. Trying to dodge taxes might even sound appealing to misguided people. Now go add up the price tags of these things, plus the cool cars and houses and the rest of it. You can go broke real quick. Just ask people like Nicolas Cage, Wesley Snipes, M.C. Hammer, Evander Holyfield and many other famous people who had it all and ended up broke or close to broke how they feel about things.
Think that laws and decency standards no longer apply.
It is true that the wealthier you get, the better attorneys and legal defense you can afford. That being said, living a reckless life without concerns about the laws of the land will not keep you from going to prison (or worse). You still have to live under the “good citizen” laws and you still likely will have to pay taxes. A good sports coach will tell any star athletes upfront that chances are high they will have to be human for far longer than they are going to stars. Movies often glamorize scoundrels, but what good does it do you if you are incredibly wealthy and such a pariah that no one will associate with you? Remember, you don’t get to take any of your wealth with you. And how fun will it be to be paying out all of your winnings to attorneys fighting to keep you out of jail or fighting civil suits looking to take your new wealth away?
Is there a thirteenth runner-up thing not to do?
Forget to wonder if the lottery you are playing is solvent and financially sound.
The State of Illinois did not have a budget resolution for much of 2015. The state’s finances have been challenged for years, and the state did not have the funds legally in place to pay out its top lottery winners. Imagine getting the winning numbers, only to receive a state voucher. It gets pretty hard to change your life in this manner on a state voucher that is nothing more than an IOU.
Again, 24/7 Wall St. would not want anyone who wins the lottery to end up without a penny to their name (or worse). Following a list of things to do or not do sounds easy enough. Unfortunately, life’s temptations can get in the way of logic.
24/7 Wall St. is a USA TODAY content partner offering financial news and commentary. Its content is produced independently of USA TODAY.some people just cannot help themselves in avoiding the pitfalls of instant wealth.
How Do Multiple Winners Claim a Lottery Ticket?
Staying Anonymous After Winning the Lottery
Playing the lottery is a game of chance, but someone has to win. Oftentimes, especially when jackpots swell to gargantuan amounts, several friends, family members or co-workers pool their money and purchase tickets as a group. After the celebration ends, the real work of figuring out how to split the prize begins.
Each state runs its own lottery, and the rules vary according to that state. This is true even for multiple-state games such as Powerball and MegaMillions. You must claim the winnings within the state where the ticket was purchased. The majority of state lottery websites contain a list of Frequently Asked Questions or FAQ’s with information on multiple winners. For example, North Carolina and New York allow multiple winners to claim the prize, while the state of Washington will only accept one claimant.
In states that allow just one winner, a group can form a legal entity to handle the claims process. This may be a corporation, a limited liability company, a partnership or a trust. An attorney can help the group determine the best approach based on the rules of that state’s lottery.
If you are part of a group that buys lottery tickets together on a regular basis, you may want to form a legal entity at the onset. This can protect all members of the group should there ever be a win. Drawing up a contract with specific guidelines about playing and dividing winnings can prevent complications like those encountered by some co-workers in New Jersey. Though they pooled money and bought tickets as a group for years, one member claimed his winning ticket was purchased separately. Without a written contract, the case became one player’s word against the others.
Lottery winnings are a welcome windfall, but they come with sizable tax obligations. There is a danger in one person claiming the prize on behalf of a group because that group member incurs the entire tax liability. When the monies are distributed to fellow winners, the department of revenue can deem these taxable gifts resulting in additional tax burdens to each winner. Consult a tax attorney, accountant or financial adviser prior to accepting any winnings to get advice on the best way to minimize tax payouts.
Getting the Money
If you believe your group has the winning numbers, call the state lottery office for specific instructions, including scheduling a time to appear in person. Some states require any and all winners to attend a public awards ceremony. Only six states allow lottery winners to remain anonymous — Kansas, Delaware, Michigan, North Dakota and Ohio. In others, an Affidavit of Multiple Ownership must be completed if all of the winners can’t collect in person.
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What Happens to Lottery Winnings if You Die Before Payments Are All Paid Out? →Playing the lottery is a game of chance, but someone has to win. Oftentimes, especially when jackpots swell to gargantuan amounts, several friends, family members or co-workers pool their money and purchase tickets as a group. After the celebration ends, the real work of figuring out how to split the prize begins. ]]>