What to do if you win the lottery
So you think all of your problems would be solved by winning the big jackpot? Think again as new ones abound… New money = New problems.
There’s no question that a windfall like winning the lottery would give you a chance to pay off debt with plenty to spare for a new lifestyle. But winner beware: The moment you cash in your ticket, your life will suddenly becomes a roller coaster ride you could never possibly have imagined.
Most of us have heard stories of lottery winners who let all their winnings slip through their fingers with nothing to show for it in just a few years. That may not happen to you, but there’s one thing you can count on—your life will change dramatically once the news of your good fortune gets out.
What to do if you win the lottery?
Yes the odds are long but thinking about winning has been cited by many as a stress reducer. Here’s a list of the steps to take before and after you claim your prize:
- Stop. Think. Breathe.
- Resist the almost insurmountable urge to call anybody to share the news. Share with immediate family members if you must and insist that they keep it quiet until you are prepared to share the news with everyone.
- Sign the ticket and put it in a secure place. Do not turn it in until you’re prepared to deal with the publicity and everything that comes with it.
- Call your financial planner, attorney and accountant to decide on a plan to protect, preserve and invest your money. Also decide how to handle the inevitable solicitations you’ll get from family members, friends, charities and sadly, the scammers.
- Once you’ve worked out a plan, it’s time to turn in your ticket. Most lottery commissions will want to publicize your win. Your anonymity will be short-lived once you’ve claimed your prize—which is why it is so important to be prepared before you cash in your ticket.
- Change your contact information. Share your new contact information only with close friends and family. Tell them not to share it with anyone without asking you first.
- Get away – run actually. As soon as you deposit your winnings at the bank you will be barraged with requests for meetings by a banker. Resist the temptation to comply as banks a littered with internal conflict of interest. Take a vacation 1st!! Use this time away to think about some of the issues that could arise from your windfall. Avoid making big decisions too hastily, especially on matters which will impact loved ones.
- Assemble a team of advisers. You might have a lawyer, accountant and financial advisor, but you probably need to ask yourself a few questions on your current advisory team. For example, your financial advisor might have sold you a mortgage or investments, are they aware and licensed to deal with the complex opportunities and issues created by your new wealth? Your lawyer might be very good with real estate transactions but not so much with estate planning. Lastly, your accountant maybe comfortable preparing this year’s tax return but is she/he knowledgeable and capable of advising you on a family trust or the intricacies of owning foreign property?
Interview many different types of advisors. If your current advisor doesn’t give you great service and advice it’s time for a change. Actually, whether you just won the lottery or not you shouldn’t ever have to put up with poor service. Good advisors can protect your fortune, prevent irreversible financial mistakes, and, generally, save you many headaches and possibly millions of dollars.
- Avoid sudden lifestyle changes. Know yourself and assume that you will change somewhat as a new millionaire. Don’t underestimate family support and friendships. This maybe a good time to stay close to that support group rather than escape to a new one.
- Don’t quit your day job yet. If you have a job you enjoy, you may want to take a leave of absence to think things through. You may decide that you want or need to continue to work after your win.
- Prepare a short, medium and long-term plan. Your plan should cover physical and mental health first and foremost. Outline what you’ll need to do health-wise and financially during the first few weeks and months as you start your new life.
- Decide on a gifting strategy. At some point you will need to draw a line in the sand to keep from giving too much of your money away. You should come up with a justification or explanation to offer friends, family and charities when you decline their requests for a hand-out.
The Down Side of Winning Big
I first met Dave after he had just won an $11 million lottery. He really didn’t get a chance to share much of his story during our first meeting. Instead, he sat across from me weeping inconsolably. I understood, from past experiences dealing with lottery winners, that Dave’s head was spinning and his emotions were running wild. But he wasn’t crying for having just won $11 million; he was crying because he had already made his first big mistake on day one as a new millionaire.
He explained that when his eldest daughter Janice drove him to claim his $11 million prize, he made her a promise to give her $1 million. True to his word, he gave her the money the next day. The problem was that Dave had four other kids he loved equally and who he wanted to give money to. He also had 4 brothers and sisters, many in-laws, lifelong friends and the church with which he wanted to be generous. He quickly realized that his decision to give Janice the first million dollars would have a huge impact on what he should give to others. He actually asked Janice for the money back and promised a significant, but different amount. She refused. What ensued was a series of emotionally-charged exchanges, arguments and accusations which caused Dave irreversible hardship with family members and friends. The rollercoaster ride was akin to the famed 1980s saga of the Lavigueur family from Montreal who, after winning a $7.6 million jackpot, was shredded by lies, deception and greed.
Have a Plan
Having an idea of what to do before you win or claim your prize will help you preserve your new wealth and, more importantly, your old self. The rollercoaster ride is inevitable, but this is one ride that would be easier on the heart and more enjoyable if you’re well prepared for it.
What are the odds of winning? Your odds of winning Lotto Max are 1 in 28,633,528 J Dreaming is fine but buying tickets is not a recognized retirement strategy by any financial planning outfit…
What’s the very first thing I should do after winning? Sign your ticket immediately. Lottery commissions have a jackpot winner’s validation process to verify the legitimacy and ownership of winning tickets for major prizes. http://www.olg.ca/lotteries/guide/claiming_prize_centre.jsp
How long do I have to claim a prize? Your ticket has an expiry date. Surprisingly, many winning tickets expire worthless with the prizes being returned to the lottery pool.
Are there taxes to be paid on lottery wins? In Canada, most lottery winnings are tax-free, however the income generated from the winnings is taxable.
Is safety a concern for major winners? Everyone will know that you’ve won the jackpot and criminals or fraudsters have been known to prey on lottery winners. Check references when dealing with professionals. Here at Exponent Investment Management, we can offer client references from lottery winners. These are lottery winners for whom we currently manage investments. Also, your personal safety should be considered for your residence and travel.
How much money do I need to “ride into the sunset”? It depends. The best way for you to answer that question is by preparing a complete financial plan that considers all factors, such as your age, lifestyle, family, savings, spending habits, investment returns and tax strategies.
Are there costs associated with seeking advice from various professionals, and what kind of professionals should I seek? Most accountants, lawyers, financial planners and portfolio managers would welcome a lottery winner with a free initial consultation. Costs thereafter will vary, and whomever you choose should be able to explain how they charge for their service.
Accountant – Choose a CPA or CA.
Lawyer – Tax and/or estate lawyer.
Financial Planner and Portfolio Manager – The Certified Financial Planner designation and the Chartered Financial Analyst Charter are 2 of the financial planning and investment management designations you should look for. Click here to get a consultation.
Other Lottery FAQs: http://www.olg.ca/lotteries/faq.jsp